Market Overview

Apple Must Show It's Not Fragile, Says UBS

Share:
Apple Must Show It's Not Fragile, Says UBS
Related AAPL
Apple's AirPod Success: Headphone Users Show They're Willing To Cut The Cord
Gene Munster Shares His Expectations For Apple's iPhone 10
What We Learned About Micron Technology From Main Competitor Samsung Electronics (Seeking Alpha)

Apple Inc. (NASDAQ: AAPL) is valued like International Business Machines Corp. (NYSE: IBM), despite the former’s long-term growth and margin prospect being superior to that of IBM, UBS’s Steven Milunovich said in a report. He maintained a Buy rating on the company, with a $115 price target.

While Apple does face product cycle issues currently, its long-term growth and margins were superior. Milunovich mentioned, however, that investors felt reluctant to look past short-term issues, because “Apple is considered fragile.” Tech stocks thrive on change and are volatile, while fragile options dislike volatility and uncertainty.

Large technology companies tend to be “more fragile than they appear,” since the industry structure changes every 20 years, Milunovich noted. He added,” Past success tends to mean future distress – we think Apple must show it is not fragile.”

Related Link: Apple's Q3 Report: The Current Sell-Side Sentiment

Why Is Apple Fragile?

Apple’s fragility is mostly on account of the company’s dependence on the iPhone and China. The analyst commented that the three “existential threats” for Apple are:

  1. Phones that were “good enough” to compete with the iPhone
  2. Policies of the Chinese government
  3. Chatbots making apps less important

Discussions with Horace Dediu, an analyst who focuses on smartphones and Apple, indicated that while variability was good for Alphabet Inc (NASDAQ: GOOGL) and Facebook Inc (NASDAQ: FB), Apple “can’t play the experimental game because it cannot afford to fail,” Milunovich wrote.

How Can Apple Address Fragility?

“Diversification by product and geography as well as more annuity revenue would likely help,” the UBS report stated. Apple should focus on new product categories like Watch, VR and car, which would “emphasize the Apple customer experience over products, and possibly provide a blanket subscription,” the analyst added.

Did you like this article? Could it have been improved? Please email feedback@benzinga.com with the story link to let us know!

Latest Ratings for AAPL

DateFirmActionFromTo
Jan 2017GuggenheimInitiates Coverage OnBuy
Dec 2016PiperJaffrayAssumesOverweightOverweight
Oct 2016Goldman SachsMaintainsBuy

View More Analyst Ratings for AAPL
View the Latest Analyst Ratings

Posted-In: Steven Milunovich UBSAnalyst Color Long Ideas Reiteration Analyst Ratings Trading Ideas Best of Benzinga

 

Related Articles (AAPL + FB)

View Comments and Join the Discussion!