Did Investors Overreact To Apple Ditching Intel Chips?

Shares of Intel INTC closed more than 6% lower Monday after reports suggested that Apple AAPL plans to replace the semiconductor behemoth's chips used in Mac computers with its own line of processors as early as 2020.

According to sources cited by Bloomberg, the initiative is code named "Kalamata" and is just one piece of a larger strategy to improve interactions between all of Apple's devices—including Macs, iPhones, and iPads.

Bloomberg described Kalamata as a "blow" to Intel, suggesting that its partnership with Apple helped revive Mac's success and "linked the chipmaker to one of the leading brands in electronics."

"We think that Apple is looking at ways to further integrate their hardware and software platforms, and they've clearly made some moves in this space, trying to integrate iOS and macOS," Cross Research analyst Shannon Cross told Bloomberg. "It makes sense that they're going in this direction. If you look at incremental R&D spend, it's gone into ways to try to vertically integrate their components so they can add more functionality for competitive differentiation."

Intel slumped as much as 9.2%, its biggest intraday drop in more than two years, in the wake of the report. The stock closed at $48.92 per share, down just over 6% from Thursday's close.

However, bullish analysts were quick to declare Monday's selloff an overreaction. For instance, Stifel reiterated its "Buy" rating and $53 price target for the stock following the initial report.

Stifel's Kevin Cassidy said that Apple only represented about 4% of Intel's total revenue last year, which is slightly lower than the 5% figure reported by Bloomberg. Meanwhile, Apple-related revenues accounted for just 1% of Intel's total profits, Cassidy said.

Up to this point, Intel has managed to avoid much of the new volatility afflicting the tech sector. The popular semiconductor stock was actually up slightly over the past month heading into today, and it likely owes some of that confidence to improving analyst sentiment.

Within the past 60 days, Intel has witnessed five positions revisions to its full-year EPS estimates, outpacing the one negative revision it has seen in that timeframe. Still, the Zacks Consensus Estimate has inched just four cents higher, and the stock is now sitting at a Zacks Rank #3 (Hold).

But Intel's Monday selloff is likely to inspire renewed attention from value investors. Before the recent dip, the stock was trading at about 14.5x forward 12-month earnings, and the company was offering a dividend yield of about 2.3%.

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