Apple Moves to Strengthen Chip Market Position

by: Trefis

Apple (NASDAQ:AAPL) recently acquired Intrinsity for around $120 million according to industry insider estimates quoted by the New York Times. Intrinsity makes mobile phone application processors and competes with Qualcomm’s (NASDAQ:QCOM) Snapdragon, nVidia’s (NASDAQ:NVDA) Tegra2, Intel’s (NASDAQ:INTC) Atom and Texas Instrument’s (NYSE:TXN) OMAP 4. These application processors give mobile phones and other mobile devices the computing power to run more sophisticated software and videos.

We believe the Intrinisity acquisition could benefit Apple with faster iPhone market share growth, while Qualcomm could be negatively impacted as Qualcomm-based devices like Google’s (NASDAQ:GOOG) Nexus One gain limited share against Apple’s iPhone.

Intrinsity Makes High Speed Mobile Processors

The iPhone 3GS has processor speeds that are currently around 600 MHz. Intrinsity’s processor speeds have touched 1GHz making it one of the fastest mobile phone processors along with Qualcomm’s Snapdragon processor. In addition to high speed processing, Intrinsity processors use less battery power making it ideal for use in mobile devices (like the iPhone) where battery consumption is crucial.

iPhone Market Share Could Increase at a Faster Rate

We expect iPhone’s market share to increase from 2% in 2009 to around 11% by the end of Trefis forecast period. However, faster processors with low battery consumption could lead to better performing iPhones that attract more consumers. There could be an upside of 5% to the $294 Trefis price estimate for Apple’s stock if Apple’s market share were to increase at a faster rate and reach around 12% by the end of Trefis forecast period.

Qualcomm’s Stock Could be Negatively Impacted

Qualcomm’s Snapdragon processor has seen gradual adoption and smartphones like Google’s Nexus One, LG’s eXpo, and the recently launched HTC Incredible are using it. However, with Apple expected to gain more market share, it could come at the expense of Qualcomm’s customers which could see stagnation or decline in their market shares. This will affect Qualcomm negatively as it will mean fewer sales of its Snapdragon processors.

In a previous article, we explained how Snapdragon’s success is important for Qualcomm to help slow declines in the company’s chipset pricing. Lower than expected Snapdragon sales would also have a negative impact on the average amount Qualcomm earns from chipset sales.