Apple's (AAPL) CEO Tim Cook, famed for his operations expertise, made the biggest gamble of his career. He dumped Samsung (SSNLF.PK) as a component supplier in the iPhone 5. Previously Samsung owned the iProduct, supplying flash, DRAM, touch screens, and battery. Apple has finally broken off the oddest business relationship ever - suing Samsung for "slavishly copying" its iPhone while purchasing its parts from Samsung. The changeover hasn't been without its ups and downs. Apple has been struggling getting enough iPhone 5s to meet a burgeoning demand. Still, you have to give Tim his due. Apple rolled out 5 million iPhone 5s in its first weekend and has held the delay in orders to 3 to 4 weeks. Not a bad effort considering the upending of the supply chain.
The Final Divorce Decree
Apple is likely to sell over 200 million iPhones in 2013. That's not counting iPads and iPod Touches (and the soon-to-be-announced mini Pads), all of which will need a chip. If Apple can't get the chips fabbed, no iOS devices get out the door. We're talking over 300 million chips for 2013. At an estimated $17.50 a pop, this could reach $5 billion in sales.
So who will Apple turn to?
Other foundries don't have the capacity to handle Apple. They are way too small.
Well, anything is theoretically possible. The things that would stand in the way with that, both of those, would be the right commercial agreement. I have to say that from a -- from the kind of taste it would leave my mouth, the Apple win would be a little bit -- a lot more attractive than the QualComm win.
If I were Intel's CEO, I'd move Heaven and Earth to make it happen while Taiwan Semi is playing hard to get. In one fell swoop, Intel would move over to the A grade table and be making chips for the leading smartphone and tablet company.
Foundry margins aren't shabby. Take a look at Taiwan Semi. Factoring out R&D, Taiwan Semi's operating margin is 41%; Intel's is 48%.
So Intel, it's really quite simple: Apple hates Samsung. You need the tablet and smartphone space. This is destiny calling. Paul, phone Tim Cook. Make a low margin bid. You'll make it up on volume and cache. Who knows? Someday we might be talking about Appletel. Seize the day. Great opportunities don't come along often. Otherwise, look for Taiwan Semiconductor grabbing Apple's business and outperforming you.
Additional disclosure: Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.