Analyst: New Zune Hurts MS Partners, Not Apple

by , 11:40 AM EDT, October 4th, 2007

Microsoft may have Apple and the iPod in its sights with the new Zune models it announced this week, but American Technology Research analyst Shaw Wu thinks the company's aim is off. Instead of hurting Apple, Microsoft's new Zune models will likely take another slice of the media player market from the Redmond company's partners.

"We view these new models as decent progress by Microsoft compared to the previous Zune, which interestingly Microsoft plans to continue selling," Mr. Wu said. "However, as we have long believed, we view the Zune as more of a competitive threat to its Windows Media partners including SanDisk, Sony, Samsung, LG, Verizon, Toshiba, and Philips as opposed to Apple and iPod."

The updated Zune product line, which includes an 80GB hard drive-based model along with 4GB and 8GB Flash-based models, is more competitive than it originally was, but Microsoft still doesn't offer products that can compete head to head with Apple's iPhone, iPod touch, and the new 3G iPod nano. Because of that, Microsoft will more likely take market share from other iPod competitors that aren't offering the same features as the Zune.

Microsoft plans to price the new Zune product line up in line with Apple's iPod products. The 80GB Zune will cost US$249.99, essentially the same as Apple's 80GB iPod classic, and $149.99 and $199.99 for its 4GB and 8GB flash-based Zunes. The 4GB iPod nano is priced at $149, and the 8GB model costs $199. The matching pricing, however, won't be enough to help Microsoft chip away at the iPod's market dominance.

Mr. Wu commented "We believe Microsoft is unable to undercut Apple due to Apple's world-class supply chain which gives it access to the lowest cost components, manufacturing, and distribution. We believe Microsoft will need to price much more aggressively in order to stand a chance against Apple."

Mr. Wu is maintaining his "Buy" rating and $185 target price for Apple's stock. Apple is currently trading at $156.52, down 1.40 (0.89%).

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