UBS’ Analyst Insights: Apple Inc. (AAPL), Micron Technology, Inc. (MU)

UBS analysts weigh in on consumer tech giant Apple Inc. (NASDAQ:AAPL) and semiconductor firm Micron Technology, Inc. (NASDAQ:MU), highlighting three existential threats to Apple’s business, and providing thoughts on Micron’s recent product and partnership announcements

Apple Inc.

UBS analyst Steven Milunovich provides insight into potential risks to Apple’s business model and highlights competitive threats. The analyst reiterated a Buy rating on the stock, with a $120 price target.

While the timing of upgrade cycles may not be ideal, rising competition represents a more serious problem. Milunovich claims that more companies have features almost identical to Apple, making them “good enough” phones. As a result, the iPhone is lacking differentiation and “customers no longer are willing to pay the Apple premium.” However, the analyst highlights counter arguments that claim the company targets “brand-conscious” consumers and has “maintained sufficient differentiation through product integration and the ecosystem.”

The analyst then explains the importance of the App Store for Apple, a $50 billion segment which “has been critical in transforming Apple from a linear pipeline to a platform company.” Milunovich believes Facebook’s newly released Messenger Bot and other similar services, which “[allow] businesses to interact with consumers” will “take on many of the roles apps provide”, representing a serious competitive threat.

Milunovich also points to the company’s Chinese market as a cause for investor concern, representing “2/3 of Apple’s growth” with many new Apple users. In addition to macro-related risks, the analyst fears local favoritism by that the Chinese government. He explains, “A more serious issue would be if the government were to favor domestic suppliers as we have seen in enterprise computing. IBM, HP, and Cisco have suffered declining sales in China as domestic champions like Lenovo and Huawei mature.” However, the analyst states that management of Hon Hai, a major Apple manufacturer, “has a good relationship with public officials.”

According to TipRanks, Steven Milunovich has a 42% success rate recommending stocks with a 1.2% average return per recommendation. Out of all the analysts who have rated AAPL in the last 3 months, 92% gave a Buy rating while 8% remain on the sidelines. The average 12-month price target for the stock is $136.25, marking a 22% upside from current levels.

Micron Technology, Inc.

Analyst Steven Chin explained his outlook for Micron following the company’s Enterprising the Data Center storage event, where the company announced new products and partnerships. According to the analyst, these announcements represented a “natural progression for the company’s NAND storage strategy,” and align with the company’s “multi-year plan” to optimize margins and growth.

Chin cites improving demand for 3D NAND, with the company “ramping up volume” to keep up. While he notes that NAND profits “underperformed” in FY15 with a (-2%) operating margin compared to “profit for all other units”, the segment is finally turning around with the release of new products, enabling the company to enter new markets going forward. He explains, “We believe the complete enterprise storage product portfolio and cost competitive 3D NAND can help Micron diversify away from commodity consumer SSD sales, compete directly with enterprise SSD peers, and potentially realize NAND margin expansion going into FY17.”

Chin notes that Micron, through its collaboration with Seagate, is now offering new products to “address much of the enterprise IT demand.” However, “the lack of cost effective PCIe tech solutions has likely limited Micron’s ability to sell into the hyperscale cloud operator channel.” The analyst reassures that its 7100 PCIe and 9100 NVMe products will allow the company to address this market and “keep Micron competitive as enterprise demand evolves.” Chin forecasts a 10% NAND sales decline in FY16 “due to price decline” but should grow to +6% in FY17.

The analyst highlights the company’s Storage Solutions Center in Austin, TX, believing continued investments “might be necessary near term to help accelerate enterprise NAND adoption longer term” due to “proprietary” customer needs. Similarly, increased investments would support margin growth and “stickier” revenues with increasing product variety. Regarding partnerships, the analyst states, “We view partnerships with VMWare, Nexenta, and Supermicro to create complete all-flash solutions as incremental to longer term growth.”

The analyst reiterates a Buy rating on the company with a $14 price target.

According to TipRanks, Stephen Chin has a 51% success rate recommending stocks with an average return of 6.2% per recommendation.

Out of all the analysts who have rated MU in the past 3 months, 64% gave a Buy rating, 16% gave a Sell rating, and 20% remain on the sidelines. The average 12-month price target for the stock is $14.25, marking a 31% upside from current levels.


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