Robert McDonald's  Instablog

Robert McDonald
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FROM INSIDE SILICON VALLEY: Sorting the truth or likely truth from the noise is a key attribute of the successful investor. My commentary is a distillation of some of this effort relative to particular stocks and investment areas. My publishing at this point in time is limited to the blogsphere,... More
    Jan 19, 2013 7:18 PM | about stocks: INTC, AAPL, QCOM, AVGO, NVDA

    No doubt Apple is trying to transfer all A series processor manufacturing out of Samsung and TSMC is the big beneficiary. And of course TSMC is the prime chip supplier for QCOM which is in the catbirds seat selling into all mobile platforms. I believe TSMC also supplies ARM based processors for a number of others including BRCM and NVDIA

    Downstream Intel may be the wild card. You have to believe Apple and Intel are talking regularly. Intel process technology is 2 generations ahead of TSMC. Intel's latest 22nm technology offers very high performance with what may be the lowest power consumption of any competitor. And they will have new 14 nm technology on line in 2013.

    There are several issues in the way. Intel wants to promote its own mobile processors of which the Atom was the first example, more variations on the way. These devices will also be shipped to Apple's competitors which has the benefit of spreading process development and state of art fab costs across multiple customers.

    But this might take away some of Apple cutting edge or even leave it behind. If other competitors ended up with a strategic advantage as a result of using Intel products, Apple will have to watch out big time here. Another of the many reason Apple and Intel must be in regular discussion and even in joint pilot projects.

    Cost is another factor. Intel has by far the most expensive process technology and has very high margins on its X86 devices, at least up until now. They may try to keep pricing and margins high on any processors that it sells into mobile. That could be strategic blunder on their part unless they can also offer advantages that make up for pricing differences.

    On the other hand, Intel's advanced technology allows it to put many more transistors into smaller and smaller areas, giving it the ability to deliver more functionality at a potentially lower cost due to reduced chip size (more chips/wafer).

    Intel has the disadvantage right now in radio devices vs QCOM and others. The do not offer LTE (aka 4G) technology as of yet. You have to believe they will soon have this for use in their system on a chip (SOC) solutions.

    There is also the possibility of Intel becoming a foundry for Apple's ARM based mobile A series processors based on ARM designs. And Intel already supplies all the processors in Apple's Mac line. Although there have been strong rumors that Apple is experimenting with what could be its own lower cost ARM based designs.

    So as you can see Apple and Intel have a lot to talk about and TSMC may loose some of that it has recently gained. Whether these talks go anywhere beyond where they are remains to be seen. If there is an expanded partnership going forward, this could bring yet another major manufacturing operation home to the US.

    In the case of TSMC will have additional major new opportunities if ARM based processors start to be competitive for servers. This will occur at Intel's expense.

    Disclosure: I am long AAPL, QCOM.

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