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Dan Naumov
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I am an IT and design professional who has picked up investing as a major hobby when I have concluded that I no longer have faith in the long-term ability of the socialist governments of Europe to provide for the level of pension and retirement that people have come to expect. I was born and... More
  • Apple And Intel: It's Happened Before, Can It Happen Again? 0 comments
    Mar 28, 2013 1:44 PM | about stocks: AAPL, ARMH, INTC, SSNLF

    There has recently been some talk about Intel (NASDAQ:INTC) potentially starting to make even more chips for Apple (NASDAQ:AAPL). That on it's own wouldn't have been news (as Intel already makes the chips used in all of Apple desktop and notebook computers), but this time, the talk is about the chips used in the iPhone and the iPad products.

    If the rumors are true, 2 different scenarios could unfold:

    • Intel is planning to extend it's semiconductor fabrication plant business and is actually going to take over making ARM (NASDAQ:ARMH) chips currently manufactured by Samsung for use in Apple's mobile products.
    • Apple is genuinely considering switching it's mobile products to Intel's x86 mobile CPUs, such as Clover Trail and Medfield.

    Option #1: Intel manufactures ARM chips for Apple

    While Intel is mostly known for designing, manufacturing and selling their own x86 chips, due to their large fabs they have the capability to make chips for other companies as well. What even fewer people remember is that Intel actually used to actually make ARM chips before: StrongARM and then XScale, so the basic idea is not really that far-fetched.

    Apple currently has a strained relationship with Samsung (OTC:SSNLF) due to all the lawsuits going on between the two. Both companies however currently need each other: few vendors can offer chip manufacturing on the scale Samsung can and Apple has become a very big customer for them. Apple is no doubt looking for options to diversify away their reliability on a rival like Samsung as should the relationship between the two deteriorate any further, Apple could find itself in a very peculiar situation.

    Intel at times seems desperate to get a foothold in the mobile device market, so it is feasible to consider that Intel could be making and selling chips designed by someone else just to get the street credibility from being able to say they have Apple on board and using Intel products in their mobile devices.

    However, it brings up the question: if Intel has the option of dedicating a significant portion of their manufacturing capability towards making chips for Apple, does this mean that they have previously misalllocated capital and now have several plants underutilized?

    Option #2: Apple is considering utilizing x86 chips in iPhone/iPad

    Now we are perhaps getting into crazy-land with this idea, but stranger things have happened. Years ago, not a whole lot of people could foresee Apple announcing a switch to using Intel CPUs in their computers, yet that's exactly what happened in 2005.

    What I found to be interesting is that eventually it was revealed that Apple had the MacOS X operating system running on both PPC and x86 processors since essentially day one of it's development (with the x86 port being kept secret). They had hedged their bets and the bet paid off.

    Mobile operating systems are much easier to keep portable across various CPU architectures compared to a general purpose OS like MacOS X, so considering history, I would be really surprised if Apple didn't have iOS running on x86 hardware in their labs.

    As crazy as the idea of Intel x86 chips powering the iPhone and the iPad might be, it does in a way make sense. Intel is currently weak in the mobile market and stands to gain a lot if Apple were to use x86 chips in their mobile devices, while Apple itself stands to gain from lessening their reliance on Samsung, a bitter rival.

    Alternative Scenario:

    Another possibility is that all these rumors are simply deliberate leaks by Apple, designed to put some pressure on Samsung to not push the lawsuits too far.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Themes: long-ideas Stocks: AAPL, ARMH, INTC, SSNLF
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