Is Intel About to Miss Another Apple Opportunity?

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Passing on the iPhone was one of Paul Otellini's biggest regrets. The former CEO of Intel (NASDAQ: INTC  ) had the opportunity for Intel to power Apple's (NASDAQ: AAPL  ) game-changing device, but the two companies couldn't agree on price. No one could have predicted the revolutionary impact the iPhone would have on the global smartphone industry.

Apple ended up turning to Samsung for mobile processors, and the South Korean conglomerate is still the Mac maker's only foundry partner, even though Apple now designs its custom A-chips in-house these days. It's no secret that Apple's relationship with Samsung has seen better days, and the company is widely expected to ditch Samsung for chip manufacturing as soon as prudently possible.

Well, Intel has another opportunity to get its silicon into the iPhone, even if now it's vying to just manufacture Apple's designs. The two reported candidates seeking to win Apple's foundry business from Samsung are Intel and Taiwan Semiconductor Manufacturing (NYSE: TSM  ) . Is Intel about to miss another Apple opportunity due to price?

Chip talk
Nomura analyst Romit Shah believes that may be the case, saying a possible deal between Intel and Apple is now "less certain." Talks have reportedly stalled and while there are many possible hurdles, price is likely the "key factor." Shah estimates that Samsung's wafer prices are 20% to 30% cheaper than what Intel is asking for. The analyst sees Taiwan Semiconductor scoring Apple's chip business this year with the A7/A7X processors, and potentially next year as well. Apple might even go back to Samsung in 2015 for the A8X, in Shah's view.

Shah's timeline seems a little off. Apple usually progresses chip generations each year, which would put A8/A8X in 2014 and A9/A9X in 2015. Regardless, Intel could be at risk of missing out again if Samsung and TSMC undercut its foundry pricing.

This illustrates the difficult dilemma that Intel has faced in mobile. Intel's chips have always come at a premium relative to ARM-based alternatives, and trying to be cost competitive would put pressure on margins. It's unlikely that Intel can't price competitively with Samsung and TSMC, but rather the company is probably hoping to maintain its healthy margin profile and won't budge.

Intel tends to rely heavily on data and forecasts. Unfortunately, the company's predictions were way off on the original iPhone, and Otellini admitted that he should have just followed his gut. What will Intel's new CEO, Brian Krzanich, do?

When it comes to dominating markets, it doesn't get much better than Intel's position in the PC microprocessor arena. However, that market is maturing, and Intel finds itself in a precarious situation longer term if it doesn't find new avenues for growth. In this premium research report on Intel, a Motley Fool analyst runs through all of the key topics investors should understand about the chip giant. Click here now to learn more.

Read/Post Comments (9) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 28, 2013, at 8:09 PM, H3D wrote:

    For 25 years, ownership of the x86 architecture has given Intel an ability to take massive margins in PC business.

    But that doesn't exist in mobile, and that isn't going to change.

    The sooner Intel realise that the last 25 years was a fluke, the better placed they will be to move forward.

  • Report this Comment On May 28, 2013, at 8:23 PM, SnarfJabroni wrote:

    @H3D who said: "The sooner Intel realise that the last 25 years was a fluke"

    Ha, thanks for the chuckle.....

  • Report this Comment On May 28, 2013, at 9:18 PM, JustinWin wrote:

    Apple will be stupid to work with Samsung.

  • Report this Comment On May 28, 2013, at 9:32 PM, rocket7777 wrote:

    Why would intel have any regret? If they don't make money that they want, why would they want to help with device that destroy their main income?

  • Report this Comment On May 28, 2013, at 10:34 PM, ScottB1 wrote:

    Apple didn't use an Intel chip in the iPhone because it was a battery hog, not because of the price. ARM processors are more energy efficient.

  • Report this Comment On May 29, 2013, at 12:07 AM, taddys wrote:

    Why Apple needs Intel more than vice-versa!

    It is unequivocal that Apple has essentially defined the user experience space for mobile devices with its success of iPods, iPads & iPhones. Apple used three elements (2 of which were essentially mundane in the hands of competitors) to differentiate its products to make them successful; software, hardware and user experience! Let’s explore these in a bit more detail, and finally project their advantage to Apple in the current mobile product landscape.

    Software: Apple took a novel approach to co-optimizing hardware with software to give it a brilliant feel and appeal. Execution of command with a tactile stimulus was brilliantly brought out with “apps and touch” approach. Touch was not invented by Apple (invented circa 1960), but implemented with an Apple touch and made central to the (success of) Apple product line.

    Hardware: Apple widened the definition of HW to include more than the CPU + memory. Even though Apple CPUs have never been the top of the line, they have been optimized for the their operating system and apps to be fairly efficient (perf/power), at least in as much as the user does not feel the need for speed. Furthermore, Apple made the whole physical design of the device part of the HW definition, whether it was the satisfying feel of the metallic case to the retina display resolution of the screen and to the minimization of edges and corners to make it more aesthetically pleasing and easy to operate.

    User or Product Experience: Finally, and more importantly, Apple created a user experience standard that competitors had to meet to even enter the market, let alone beat Apple. This included unpacking a new product (simple and high quality packaging), to being able to use it within minutes (if not seconds) in an intuitive fashion. Understanding and pleasing the consumer became paramount to make a product successful and (extremely) profitable! Not to mention the entire aps and music eco-system that works seamlessly across the three main product lines.

    Resting on one’s Laurels!

    This is where the story of Apple could be in its final chapter. Despite all the advantages, Apple’s competitors have pretty much closed the gap in two of the three attributes mentioned above. The closed approach to developing products and its arrogance has caught up with Apple. For all practical purposes Android, Tizen, Win 8 and Blackberry operating environments have pretty much provided the same benefits as Apple (possibly not the eco system yet, but getting there). In fact, Samsung and HTC have taken Android to new heights by also providing the user experience with hardware optimization. So that leaves the raw performance aspect (CPU, memory, graphics) and brings us to why Apple needs Intel to thrive.

    Samsung, the company at the heels of Apple has now adopted Intel CPU (at least for tablets). Intel will dominate in mobile performance (ostensibly even performance/power). Having mastered software and user experience and now adopting “best” hardware (Intel), Samsung or Lenovo will be tough to beat. Yes, perhaps Apple can pull another rabbit out of its product portfolio hat, but without Intel’s hardware, or another equally strong chip, it will struggle or struggle to keep the competitors at bay for long.

    If Samsung picks up Intel for more than just Galaxy products, and when Intel is successful with ZTE, Lenovo, Motorola, Orange, “Africa”, “Asia” and other vendors, Intel can survive without Apple. The question is, can Apple survive without Intel or does it need Intel to save its mobile space like Intel saved its Mac line!

    Disclosure: I am long on Intel, have stake in Apple, do not own ARM!

  • Report this Comment On May 29, 2013, at 12:31 AM, techy46 wrote:

    Intel would be much better off with out Apple's chip revenue and low profits. Intel needs to stay focused on their Atom and Core product lines and leave Samsung and TMC to fight over Apple. Intel never had the products the first time with Apple and it would've been a major distraction from their competition with AMD which they won hands down.

  • Report this Comment On May 29, 2013, at 6:07 AM, stretcho44 wrote:


    The other problem with Intel taking on Apple is fab capacity. Intel fabs are likely running at full capacity today churning out Haswell CPU for next Monday. Intel does not have leading edge fabs to dedicate to Apple at bargain basement prices like Samsung is pitching.

    What would be funny would be if Samsung used Intel for their tablets (think Galaxy S4 Tab 3) and smart phones and Samsung Semiconductor made the Apple ARM chips.

    "Shah's timeline seems a little off."

    Romit Shah has made bashing Intel his personal mission.

    Look at Romit's Intel rating history and answer the question:

    On 10/19/2011, Romit Shah maintained the Intel rating at reduce and maintained his $18 target.

    On 12/13/2011, Romit Shah lowered his revenue, margins and earnings forecast for Intel, maintained his reduce rating but increased the target to $21. WHY did Romit increase his target quietly by 17%?

    Why did Romit Shah maintain his reduce rating, even as he raised his target 38% from the $18 to $25?

    I would be careful using Romit Shah and the Nomura team as reference for any information.

  • Report this Comment On May 29, 2013, at 7:36 AM, yahtzard wrote:

    Intel has made it abundantly clear that they will not be manufacturing architectures that enables direct competition. That means that Apples ARM based A series soc's are a non-starter.

    If Apple were to consider moving to an x86 based architecture THEN Intel might very well be in the running to manufacture a custom chip to Apple specifications. It may seem outrageous but it wasn't so many years ago that Apple moved their desktops to the x86 platform. Conversely Intel has already enabled Android to run on x86.

    In the short term I think Apple finds themselves in a quandary. Going to x86 is probably less than palatable. On the other hand relations with Samsung have soured and TSM has limited capacity. Moreover, both of them are a solid generation behind Intel with respect to transistor technology and manufacturing process. The ARM architecture is highly competitive but that gap is closing and they just can't hold a candle to Intel's R&D budget. Meanwhile, it seams that ARM has turned significant attention to the server market.

    I think Intel based mobile Apple devices are a serious consideration but not a reality any time soon... Also bear in mind that Apple mobile devices are the most profitable in the world but not the most prolific. If Apple won't share those high margins with their partners and Android devices are the most popular by sales volume then how much is Apple really bringing to the table?

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