Market Overview

How Intel Might Be Affected If It Loses Apple As A Customer

How Intel Might Be Affected If It Loses Apple As A Customer

Intel Corporation (NASDAQ: INTC) stock tanked Monday following a report by Bloomberg that Apple Inc. (NASDAQ: AAPL) intends to start producing its own PC chips as soon as 2020. It didn’t take long for Wall Street to react to the latest threat to Intel’s business.

Here’s a look at what analysts have to say about the report and the type of impact it could have on Intel.

Believe It When You See It

Analysts are skeptical of the whole idea of Apple making its own chips.

“While this has been an existential threat ever since AAPL introduced the A4 processor in CY10 for the iPhone, and was first speculated by Bloomberg in 2012, there has been little incremental speculation in the last 18-24 months and the specificity of the article does lend some credibility,” Credit Suisse analyst John Pitzer said in a note.

Morgan Stanley analyst Joseph Moore said it’s unlikely Apple will actually start using its own chips for Mac computers.

“Overall, while such products could chip away at the core Mac business, we don’t see Intel’s roughly 4% exposure to Macs being fully at risk in an investable time frame,” Moore said.

Compatibility Issues

Moore said Apple could potentially have major compatibility issues if it chooses to create its own internal chips. “Ensuring backwards compatibility with prior Macs would require emulation of x86 code on an ARM processor, which hampers performance,” Moore said.

Pitzer agrees.

“It is unclear what moving up the stack offers – a unified OS seems tertiary as apps have become more form-factor specific, it would likely open up the risk of performance/compatibility issues,” he wrote.

Limited Financial Impact

Even Apple still decides to dump Intel’s PC chips, the financial impact on Intel would likely be limited in the near term, Bernstein analyst Stacy Rasgon said.

“Assuming an average ASP of, say, $150 (above Intel's corporate average), GMs at least at corporate average (mid-60's%?), and 100% fall through, we would estimate direct potential impact to Intel's financials of ~$3B in revenue, and 30-40 cents in EPS,” Rasgon wrote in a note.

The bigger threat, however, is that Apple could set a trend among Intel customers. “One leg of our bear case on Intel is the presence of renewed competition in markets that were previously effective monopolies, and major customers doing their own silicon is a potentially significant aspect of that,” Rasgon said.

Jefferies analyst Mark Lipacis said Apple would add another name to the growing list of Intel competitors that are pressuring margins and pricing power.

“We've argued that even as semis are benefitting from consolidation-driven higher pricing and margins, that the risk to Intel is that higher competition from NVDA, AMD and CAVM will translate to increased price pressure and lower margins,” Lipacis said. “[The] Bloomberg article suggests Apple could add to that competitive risk.”

Ratings And Targets

Wall Street remains mixed on Intel stock given the number of uncertainties the company faces in coming years:

  • Jefferies has an Underperform rating and $38 target.
  • Credit Suisse has an Outperform rating and $55 target.
  • Bernstein has an Underperform rating and $38 target.
  • Morgan Stanley has an Equal-Weight rating and $43 target.

Intel was trading around $49 per share at time of publication.

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Latest Ratings for INTC

Nov 2020Northland Capital MarketsUpgradesUnderperformMarket Perform
Oct 2020JP MorganMaintainsOverweight
Oct 2020Deutsche BankMaintainsHold

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