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Western Digital Gets Upgrade, As New Era With SanDisk Begins
Western Digital ( WDC ) on Tuesday received a price-target hike to 50 from 45 and an upgrade to outperform from market perform by Cowen analyst Karl Ackerman. The moves comes two days before Western Digital is slated to give new guidance that will include its $16 billion acquisition of SanDisk. Western Digital announced the completion of its SanDisk acquisition last week, creating a big competitor in both disk drives and flash-chip storage. The company has said it would update its guidance after the market close Thursday for its fiscal fourth quarter ending July 1. Ackerman says while he expects the SanDisk acquisition to dilute earnings through 2017, “We think the stock should start to work higher from here, as Western Digital’s updated guidance should act as a positive catalyst and help eliminate uncertainty.” Western Digital stock was above 42, up more than 4%, in afternoon trading in the stock market today . However, the stock is down 47% since the acquisition was announced in October. Shares hit a four-year low of 34.99 on May 16 but are up 20% since then. Western Digital and SanDisk had combined revenue of about $20 billion in 2015, with $14.5 billion from Western Digital. It’s the largest provider of disk drives, ahead of Seagate Technology ( STX ). SanDisk is a leading provider of chips used for data storage in a wide variety of devices, including smartphones, tablets and PCs. The deal will help SanDisk, which has a strong retail business, move up the ladder to make bigger sales to businesses and other enterprise customers — the market where Western Digital is strongest. Western Digital gets the ability to offer chip-based storage in areas where its disk drive technology is losing ground. Western Digital’s year-over-year revenue has fallen for six straight quarters. That’s largely due to lower disk drive sales in the slumping PC market and the migration of disk storage to chip-based storage in many products. Seagate’s revenue has fallen for five straight quarters. “Now that SanDisk is subsumed into Western Digital’s operations, Western Digital now morphs from an enterprise highly exposed to the cannibalization of next-generation storage into a media agnostic, vertically integrated data storage provider capable of generating mid-single-digit revenue growth and low-double-digit EPS growth,” Ackerman wrote. He said the top 10 customers shared between Western Digital and SanDisk include Best Buy ( BBY ), Apple ( AAPL ), Hewlett Packard Enterprise ( HPE ) and HP Inc. ( HPQ ) “With SandDisk, Western Digital can now more effectively service both enterprise and hyper-scale customers and capitalize on the explosion of data creation that should double every two to three years by 2020,” Ackerman wrote.
Will Apple iPhone 7 Sell, With Bigger Upgrade Coming Next Year?
Apple ( AAPL ) shares have gotten a lift this week on reports of higher-than-expected production orders for the upcoming iPhone 7. But Wall Street is starting to wrestle with worries that iPhone users might skip that modest upgrade and wait for next year’s expected radical redesign. The iPhone 7, likely to be released in September, is expected to look much like the current iPhone 6S series, but with a thinner body, faster processor and better camera. It also could be the first waterproof iPhone. But next year’s iPhone 8 is rumored to use an OLED display, which offers richer colors, darker blacks and lower power consumption. OLED displays also are thinner than LCD screens and are flexible, allowing new design options. The iPhone 8 could feature an all-glass, curved screen design. It might even eliminate the physical home button in favor of the pressure-sensitive screen, according to tech news reports. Universal Display ( OLED ) stock climbed to a record high Tuesday on the iPhone 8 speculation. Universal Display is a key supplier of technology and materials for OLED displays. Universal Display climbed as much as 5.8% to 64.83 in intraday trading on the stock market today . In afternoon trading, it was up 5%, near 64.50. Apple shares were up 1.4%, below 98, in afternoon trading Tuesday. Semiconductor equipment manufacturer Applied Materials ( AMAT ) also is benefiting from interest in OLED. Last week, Applied Materials said its Q2 display orders rose a whopping 483%, driven by demand for machines used to manufacture OLED displays. With rumors rampant about the iPhone 8, smartphone users looking to upgrade will have to decide whether to get a more traditional-looking iPhone 7 or hold out for the revamped iPhone 8. Consumers Won’t Skip iPhone 7 Upgrade: Wells Fargo Wells Fargo Securities analyst Maynard Um said in a research report Monday that he doesn’t believe next year’s iPhone will hold back upgrades during the iPhone 7 cycle. “While it is reasonable to assume Apple may introduce an iconic iPhone in 2017, we believe it is not a foregone conclusion that the consumers will skip the iPhone 7 upgrade in 2016,” Um said. “The core of our premise revolves around continued competition for subscribers as two-year contracts come up for renewal.” If wireless carriers continue to run aggressive promotions to reduce subscriber churn and to attract new customers coming off two-year contracts, there may be strong incentives for people to upgrade, Um said. Um has an outperform rating on Apple stock, with a fair value of 120 to 130. Despite encouraging iPhone 7 production reports , UBS analyst Steven Milunovich is cautious. He recently lowered his iPhone forecast to unit growth of 2% for fiscal 2017, down from 4% previously. Apple’s fiscal 2017 starts on Sept. 25. For fiscal 2018, during the iPhone 8 cycle, he expects unit sales growth of 15%. Milunovich rates Apple stock as buy, with a 12-month price target of 115. “A lack of differentiation in the iPhone 7 will cause the upgrade cycle to lengthen,” he said in a report. “Although it’s possible that Apple has a ‘gee-whiz’ upgrade in store for the iPhone 7, the absence of leaks makes it unlikely.” RELATED: Universal Display Spikes On iPhone OLED Prospects Apple Begins Retail Refresh With San Francisco Store