Analyst: New Zune Hurts MS Partners, Not Apple

October 3rd, 2007 at 3:00 PM - Apple Stock Watch by Jeff Gamet

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 companyis aim is off. Instead of hurting Apple, Microsoftis new Zune models will likely take another slice of the media player market from the Redmond companyis 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 doesnit offer products that can compete head to head with Appleis iPhone, iPod touch, and the new 3G iPod nano. Because of that, Microsoft will more likely take market share from other iPod competitors that arenit offering the same features as the Zune.

Microsoft plans to price the new Zune product line up in line with Appleis iPod products. The 80GB Zune will cost US$249.99, essentially the same as Appleis 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, wonit be enough to help Microsoft chip away at the iPodis market dominance.

Mr. Wu commented "We believe Microsoft is unable to undercut Apple due to Appleis 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 Appleis stock. Apple is currently trading at $156.52, down 1.40 (0.89%).

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