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My Reasoning Behind Why AAPL Could Benefit From A Buyout Of AMD

|Includes: Apple Inc. (AAPL), AMD

In early November news articles began to surface that Apple (NASDAQ:AAPL) would soon be moving away from the Intel (NASDAQ:INTL) products in their Mac products. As more basic internet research shows, Apple (AAPL) has done this before in the past with previous processing families and their intentions are to bring the love back into the family house and custom build their chip systems.

As we all know, Apple (AAPL) is not a fresh face when it comes to designing and building their own hardware. In my eyes, this route for them makes sense, as their products have become extremely popular due to their trendy, vogue nature, as well as the quality of software that comes with them. These are the perfectionist details that we are accustomed to with Apple products, where we also expect to pay a premium for said quality.

Let's take a quick look at Advanced Micro Devices. (NASDAQ:AMD)

AMD (AMD) has been a PC player and Intel's (INTL) main competition for several years. They currently are seen as the GPU resource for very popular home entertainment systems (XBOX 360, Wii, WiiU, potentially XBOX 720) which helps to give them some bottom line income for their currently foreseeable and troublesome future. Sony is rumored to be using both the GPU and CPU/APU's offered by AMD (AMD) for their PS4 machines.

AMD (AMD) has been riddled with a lack of ability to keep up with Intel's speed in producing smaller, faster and more efficient products. This has helped them lag behind their main competitor and sink further into absentia as they are all but forgotten in this modern realm.

AMD (AMD) also has been slow to get into the mobile market, in this case just like their main rival Intel, and have seen competitors that are in different but similarly related markets, join the CPU/APU battle. This is going to cause havoc for a cash-strapped operation that has acquired a notable firm to help decide how to deal with it's assets; there are red flags afoot!

Red Flags:

  • Continued depressed outlook on financials, growth, products compared to competitors for mobile platforms
  • YOY decreases (expected due to industry, yet still bleak)
  • New products upon release are still behind their competitors
  • New faces, some familiar, in market grab for mobile products

Now, we've talked about the bad, a little bit of the potential good.

As I had mentioned before, I believe that AMD is going to be a good purchase opportunity for Apple. With Apple potentially moving away from Intel on the processor families, they would benefit from having the amount of cash they have at Apple and AMD's heritage and current pipeline of products. Apple would then be able to further position itself to gain from it's competitors (MSFT, Sony) and allow it to completely enter the Home Entertainment (video game market) beyond it's current product offerings.

This is what I believe it Apple would gain from a purchase of assets or outright purchase of AMD:

  • Apple would have years of R&D from a dedicated chip maker to utilize in it's future products. This helps to lower the cost of production of their products, thus raising margins.
  • Apple could earn monies from Microsoft, Sony and Nintendo's very popular products that typically fly off the shelves for the first few months, with steady purchasing for years afterwards.
  • Apple could position itself to build devices meant to compete with Sony, Microsoft and Nintendo from AMD's pipeline line-up, having GPU, CPU and APU technology at their disposal. This will also help Apple in it's quest to rule your household electronics!
  • If entering the video game market, Apple could effectively earn income from iTunes via selling streamable video games.

    This, for me, helps to visualize the incremental increase in profit Apple would have to it's disposal, plus if the downloads are stored on the Cloud, the system could re-download the game from the Cloud once purchased and potentially prompt a user to purchase additional Cloud space.

  • AMD appears cheap for Acquisition.

AMD has said that it is not seeking a purchaser, however I believe that may be to save face and limit any fall out (downward pressure) on the stock if a deal is not found within the markets acceptable idea of a time frame.

I also don't believe a company with great future prospects would go to JPMorgan and ask them to help with a divesting plan or an outright sale of it's business if they did not want that option on the table; it may be the only option for a struggling business stuck behind it's competitors with YOY sales in the toilet.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AMD over the next 72 hours.