Apple (AAPL) Has Life Beyond the iPhone - UBS
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UBS analyst Steven Milunovich reiterated a Buy rating and $127 price target on Apple (NASDAQ: AAPL) Wednesday, saying the iPhone is not the end of the road for the company and he sees the 'ambient paradigm' coming.
Milunovich notes that their residual income model finds that only 11% of the market cap of Apple is attributable to profits beyond three years, suggesting investors don't have much faith in the company's future. Alternatively, the firm calculates that the current price reflects slight annual declines in the size of the installed base and the dollars per customer spent with Apple.
"If there is little beyond the iPhone, this cautious view should prove correct," he said. "However, we believe Apple is preparing for the next era of personal technology - the Ambient Paradigm."
Milunovich said they think of Apple's evolution in paradigms. He explains: "The Computer Paradigm (Mac) yielded to the current Mobile Paradigm. An important clue was the iPod, a transition offering. We consider the Apple Watch and AirPods similar transition products today on the way to an integrated user experience based on multiple products seamlessly connected. We call it the Ambient (present on all sides) Paradigm. It is Tim Cook's "iOS everywhere."
The analyst notes Ambience may be the next scarcity and requires hardware, software, and orchestration. "Although the iPhone remains important in new uses such as AR, we expect the Watch, AirPods, and possibly other wearables to evolve beyond current functionality and potentially impact hard-to-disrupt industries such as healthcare and education. Siri increasingly can play traffic cop, invoking services enabled by Apple opening up APIs, to provide a seamless user experience across devices whether the consumer is sitting, walking, shopping, or driving. We suggest that this trusted, connected ecosystem could be the next scarcity."
Shares of Apple closed at $113.00 yesterday.
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