UPDATE: JPMorgan Cuts Western Digital (WDC) to Neutral on Weakness in PCs, Slower Growth (STX)

(Updated - June 23, 2015 9:57 AM EDT)

JPMorgan downgraded Western Digital Corp. (NASDAQ: WDC) from Overweight to Neutral with a price target of $92.00 (from $105.00). Neutral-rated Seagate Technology's (NASDAQ: STX) price target was lowered to $54 (from $57). Analyst Rod Hall noted PC data points continue to be negative, and he lowered FY16 EPS estimates by 9.1% to $4.44 for Seagate and by 1.6% to $7.41 for Western Digital.

"We continue to see little evidence of an improvement in PC fundamentals. We also note negative comments on PC demand from HP, Avago, and Micron over the last month. We expect Intel Skylake to, if anything, push the normal PC cycle later this year. We also doubt the Windows 10 upgrade effect and see increase iPad cannibalization risk later this year," said Hall.

"We roll out our proprietary HDD model, and now forecast HDD shipments of 507m in 2015 (-10.2% Y/Y) and 495m in 2016 (-2.3% Y/Y). We note that this is significantly lower than the last published third party (Gartner and IDC) estimates, but we expect further downward revisions following recent negative data," the analyst continued. "We expect ASPs to rise from $58.6 in 2014 to $60.1 in 2015 (+2.6% Y/Y) and $61.2 in 2016 (+2.1% Y/Y). We believe this is driven by increasing capacities per unit as well as the rising mix of enterprise HDD shipments."

Commenting on Western Digital, Hall said, "We downgrade Western Digital to Neutral, as we believe the cheaper valuation compared to large-cap tech peers is justified by the weakness in PCs and slower growth, in our opinion. While we note that a favorable ruling on HGST by MOFCOM could provide material upside, visibility remains limited, in our opinion."

For an analyst ratings summary and ratings history on Western Digital Corp. click here. For more ratings news on Western Digital Corp. click here.

Shares of Western Digital Corp. closed at $91.60 yesterday.

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