Written by: Rita
Bernstein believes that the dispute over TDK's head business will not threaten Seagate and Western Digital. This assessment contradicts the market sentiment and the stock price reactions of the two companies, which fell 9% and 7% respectively in a single day.
Bernstein maintained overweight ratings on Seagate and Western Digital in its report dated October 7, 2026, with a target price of $1,350 for Seagate and $770 for Western Digital. The core thesis is that the direct threat from the TDK asset dispute to Seagate and Western Digital is far less severe than implied by their stock price reactions, with regulatory, financing, and supply risks all posing transactional hurdles.
Three concerns are exaggerated
After Bloomberg reported that Seagate and Toshiba are competing for TDK's head business, the market has developed three concerns. Toshiba is more aggressive in expanding capacity. If Toshiba ultimately wins the assets, its vertical integration could harm Seagate and Western Digital. If Seagate wins the assets, Western Digital will be at a disadvantage.
Bernstein believes all three concerns are overstated. The news has not been confirmed. The report contains many details and sources, giving it an appearance of credibility, but it is unclear how serious the negotiations are. Both TDK and Toshiba have denied making any decisions and refuted some of the details reported by Bloomberg, though they have not directly denied that discussions are underway.
Toshiba’s increased capacity will still leave it behind Seagate and Western Digital. Toshiba currently holds approximately 11% of the EB-scale mechanical hard drive market. If Toshiba doubles its EB capacity while Western Digital and Seagate each grow by 25%, Toshiba’s EB market share would rise from 11.2% to 16.8%. Bernstein believes a 5.6 percentage point increase in market share is not concerning. Acquiring this business would further secure Toshiba’s existing head supply, but it would not directly increase hard drive manufacturing or head production capacity.
TDK is not critical to Seagate or Western Digital
Bernstein noted that Seagate and Western Digital have limited dependence on TDK. TDK holds a 15% to 20% share of the global hard drive head market, while Seagate and Western Digital's in-house head production accounts for the remaining 80% to 85%.
Bernstein estimates that Toshiba accounts for approximately 14% of the hard drive industry’s head demand, higher than its 11.2% share of hard drive shipments, because Toshiba’s hard drives have lower capacity per platter and require more heads per EB. Toshiba alone absorbs 70% to 90% of TDK’s head production. The remaining portion covers only 1% to 7% of the combined head demand of Seagate and Western Digital.
Most of the heads for both companies are also self-produced. Seagate stated in its filing that the company designs and manufactures many key technologies in its hard disk products, including read/write heads, magnetic recording media, and other core components. Western Digital stated in its filing that the company designs and manufactures nearly all of the recording heads and magnetic recording media in its hard disk products. Bernstein believes that TDK may be marginally important, especially during periods of strong demand, but is not a key source for the majority of production for either company.
Regulatory barriers create trading obstacles.
Bernstein noted that any bidder faces significant regulatory hurdles. TDK is the only independent manufacturer among the three hard drive head producers. Any successful acquisition would mean the acquirer gains control over a critical input component of its competitor, which Bernstein believes would trigger strict antitrust scrutiny.
The combination of Seagate and TDK is unlikely. Bernstein believes this would place more than half of global head output under one company, with Seagate accounting for over 40% and TDK between 15% and 20%. Toshiba would find itself forced to purchase heads from one of two larger competitors. Western Digital would similarly lose the option to purchase capacity.
A combination involving Toshiba and TDK is more likely than Seagate, but Bernstein remains skeptical about the feasibility of the deal. Seagate and Western Digital manufacture their own heads but rely on TDK to meet demand spikes. Toshiba still retains pricing power and can limit Seagate’s and Western Digital’s ability to ramp up production during periods of severe storage shortages.
Toshiba’s own capital structure presents another obstacle. Toshiba’s corporate bonds have been rated BB by S&P. Bernstein estimates that the acquisition of TDK would add to existing acquisition debt and potential proposed capital expenditures of $380 million. Given Toshiba’s weak financial position and poor execution in its hard drive business, Bernstein believes this transaction could become a strategic misstep for Toshiba.
Toshiba has a poor track record in executing its hard drive business. Bernstein noted in its report that Toshiba's hard drive operations have been weak, with slower capacity expansion and technological upgrades compared to industry peers. This makes integration even more challenging, even if Toshiba acquires TDK's assets.
Buy Seagate and Western Digital
Bernstein maintains outperform ratings on Seagate and Western Digital. Seagate’s target price is $1,350, based on a 21x multiple of its FY28 EPS of $64.40. Bernstein believes Seagate’s improved fundamentals, a five-year EPS CAGR exceeding 70%, and its leadership in HAMR are sufficient to justify a 21x P/E ratio—and potentially even higher.
Western Digital's target price is $770, also based on a 21x multiple of FY28 earnings per share. Bernstein believes Western Digital is largely self-sufficient in HAMR technology and should remain unaffected by this news. Post-spinoff, Western Digital's head business remains self-sufficient, with lower marginal dependence on TDK than the market fears.
On the risk front, both companies face pressure from absorbing massive cloud capital expenditures, shifts in hyperscaler procurement models, and NAND technology improvements encroaching on hard drive market share. Western Digital also faces the risk that its HAMR technology transition could weigh on gross margins and earnings per share. A shift in hyperscaler procurement models would directly pressure hard drive demand.
Bernstein recommends buying Seagate and Western Digital during weakness, with Seagate as the preferred choice. This positioning assumes the TDK deal does not close, or if it does, it does not impact the head supply for either company. Regulatory scrutiny and Toshiba’s financial pressures make the likelihood of the deal closing low.
Disclaimer
This article is a compilation and interpretation by Chaoxiang Research of a third-party brokerage research report (Bernstein, October 7, 2026), combined with publicly available market information. The ratings, price targets, earnings forecasts, and related judgments cited herein reflect the views of the brokerage’s analysts and represent the position of their respective institution only; they do not reflect the views of Chaoxiang Research nor constitute any investment advice.
The market carries risks; make decisions independently. This article should not be used as a basis for buying or selling any securities.