Apple Named Barclays' Top IT Pick; HP, IBM, NetApp And Xerox Seen As Value Traps

• Shares of most data networking and IT hardware majors are meaningfully down year-to-date.
• Barclays' Mark Moskowitz initiated coverage of the Data Networking and IT Hardware industries with a Positive view on the former and a Negative view on the latter.
• The Cloud is altering IT spending patterns and vendor incumbency, Moskowitz said, adding that there is a divide between vendors that are cloud-optimized or insulated and those that are not.

Analyst Mark Moskowitz said that the cloud is becoming “a disruptive force,” causing changes in both IT spending trends and vendor incumbency. The cloud holds the promise of increased efficiency, improved flexibility and cost reduction.

The cloud is “plowing a divide between vendors that are cloud-optimized or insulated and those that are not,” Moskowitz wrote. He added that the latter group could witness a “chronic decline” in its revenue trajectory.

In the report Barclays noted, “In the years ahead, the cloud divide, not the economy, is the bigger growth vector.”

In the IT Hardware segment, Moskowitz initiated coverage of Apple Inc. AAPL with an Overweight rating and a price target of $150. The positives were cited as “the iPhone's stickiness/renewed pricing power, a growing services model, and low cloud displacement risk.”

Barclays initiated coverage of Hewlett-Packard Company HPQ [PT $26], International Business Machines Corp. IBM [PT $146], NetApp Inc. NTAP [PT $31] and Xerox Corp XRX [PT $10] with Underweight ratings.

Moskowitz believes these companies are “value traps” since they have traditional IT models that are “more vulnerable” to being hurt by the cloud divide, and the contraction in their revenues “could become chronic.”

“While not impossible, it will take time for these companies to recalibrate their models to be more cloud-optimized, and the incremental risks, such as the potential for larger uses of cash to fund acquisitions, could weigh on valuation metrics,” the report stated.