You knew the day would come when so much data, content, music, video and so much more are looking for a place to reside that storage protocols and standards would start to change. A new report from UBS says that the evidence is accumulating that first high-end, and then later mid-range enterprise storage will shift from disk to hybrid to all-flash arrays.
For the record, an all-flash array is a solid-state storage disk system that contains multiple flash memory drives instead of spinning hard disk drives. The UBS team points out that 451 Research reports all-flash arrays (AFAs) use has risen from 6% of enterprises in 2013 to 22% today. They also cite the fact that over 40% of chief information officers see the need for AFA storage. The NAND flash suppliers are the big winners, and disk drive makers that already have been pummeled this year could be in big trouble. The UBS team thinks three top companies are poised to benefit, and all are rated Buy.
This top chip company has been in the doghouse on Wall Street all year, and the recent very positive earnings report certainly has helped to lift the pall hanging over the company. Intel Corp. (NASDAQ: INTC) is among the companies regarded as having among the highest shareholders cash returns, at approximately 8%, but it has lagged high-growth specialty chip stocks. The iconic chip giant had a stellar 2014 on the tailwind from continued personal computer (PC) sales, but this year has been a far different story. Despite a very positive second-quarter earnings report, the stock is down a gigantic 18.2% year to date.
Intel purchased chip rival Altera for $16.8 billion. Some on Wall Street view the deal pessimistically, citing its high cost, aggressive growth assumptions on the part of Intel and the increase in debt. Others feel the addition will help Intel start to move away from PC dependence, and it would put Intel into the traditional fabless market of programmable logic devices. By 2020, half of Altera’s product line could be manufactured at Intel facilities.
The UBS analysts point out that Intel’s NAND flash memory business has a strong focus on enterprise opportunities. They also agree with many on Wall Street who are very positive on the company’s new chip, which is a collaboration with Micron Technology, called the 3D XPoint could be primarily In-Memory compute in servers, and its launch should coincide with Intel’s Purley platform server launch in 2016.
Intel investors are paid an outstanding 3.33% dividend. The UBS target for the stock is $32. The Thomson/First Call consensus target is $33.48. Shares closed Friday at $28.81.