As San Jose, Calif.-based computer data storage company Western Digital Corp. (WDC) vies to gain a larger piece of Toshiba’s chip business, global tech giant Apple Inc. (AAPL) is reportedly trying to stop the company from taking majority ownership as it fears losing pricing control for NAND chips.
Based on the “apparent jockeying by Apple,” one team of analysts on the Street recommends buying Western Digital, one of the world’s largest manufacturers of computer hard disk drives, as the flare up with Apple demonstrates the strength of Western’s position in the “new era of tight memory-chip supply.” (See also: Why Western Digital's Soaring Stock May Stall.)
Analysts at BTIG Research are calling Apple’s effort to control the pricing of the NAND chips that the company gets from Western and its joint venture partner Toshiba a “tantrum.” The failed attempt is a sign of a new, more profitable era for Western and its competitors in NAND flash, suggests BTIG analyst Edward Parker.
Parker, who maintains a buy rating on WDC, along with a $120 price target, notes that due to the speculative nature of the news, “it’s still anyone’s guess as to details of the final outcome of the Toshiba memory business saga.” However, “the fact that Apple is throwing its weight around in such a significant way at so late an hour suggests that it views that higher sustained memory pricing, not a dramatic reversion to the mean, is a very real possibility,” writes the BTIG analyst, noting that as WDC trade at just 7x earnings-per-share (EPS), the market continues to disagree with his premise.
Ultimately, Parker believes that Apple could manage to shell out a lot more for NAND than its current contracts command, and that Western and its industry peers may finally have the power to make the Silicon Valley leader do so. Apple is now a “incremental buyer of chips in an environment of scarcity rather than a beneficiary of a highly liquid market where retail-led reference pricing is far below Apple’s willingness to pay,” concluded BTIG. (See also: 3 Reasons Apple Will Keep Beating the Market: Bernstein.)