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Intel Corp. Needs to Have a Talk With Shareholders About Apple Inc.

By Ashraf Eassa - Apr 4, 2018 at 2:00PM

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Honesty is the best policy.

On April 2, Bloomberg reported that Apple (AAPL 0.03%) intends to move away from Intel-based (INTC -2.43%) processors in its popular Mac line of laptops, replacing those chips with internally designed processors.

Bloomberg is a dependable publication with reliable sources, so the odds are good that Apple is indeed planning to dump Intel processors in the Mac within the next few years.

An Intel hex-core processor die.

Image source: Intel.

With the cat out of the bag, analysts are almost certainly going to ask about this development during Intel's upcoming earnings conference call. They'll probably ask about the expected timing of this transition, how quickly the transition is likely to take, and what the financial impact of Apple's shift away from Intel processors is likely to be. 

Intel's best course of action, in my view, is to be as transparent with analysts and stockholders as possible about this development.

Let's dive into what this would entail.

Tell investors the expected timing

It's almost certain that Apple's decision was made recently and that Intel learned about it -- again, assuming that it's been set in stone -- fairly recently. I say this because Intel CEO Brian Krzanich put in a stock sale plan on Oct. 30, 2017 -- something that Intel's legal team wouldn't have allowed him to do if he had knowledge that a major customer was planning to stop buying chips in the near future.

At this point, though, if Bloomberg has published this information for the world to read, then Apple has probably informed Intel about its plans. If Intel hasn't yet been informed by Apple about this development, you can bet that Intel and Apple will be having a little chat well before Intel's next earnings conference call.

Once Intel has an idea of what's going on, it should inform analysts and shareholders on its upcoming conference call. Other Apple suppliers who have been victims of such reports have made it a point to let investors know on their respective earnings call what sort of design win visibility they have at Apple. Intel should do the same.

Quantify the impact

Additionally, Intel should be transparent in quantifying the potential revenue and profit impact that such a major customer loss would have on its business. It's not hard to estimate the size of Apple's business with Intel, but more precise figures directly from Intel on both the revenue and gross profit contributions from Apple would be helpful.

By allowing investors and analysts to know exactly what revenue and profit is at stake, Intel would remove much of the uncertainty around this whole thing -- something that would likely help the stock price, as investors seemingly hate uncertainty above all else.

Mitigation plans

The last thing Intel should discuss is how it intends to strengthen its future product offerings across its different business segments -- PC processors, data center, and others -- to avoid any other large customer defections.

If Apple is going to ditch Intel, it likely did so because it felt that it could do a better job than Intel could at building processors for personal computers. Considering that most of Intel's revenue comes from the sale of personal computer processors, that's not exactly a good look for Intel.

Investors might view Apple's defection as a symptom of a larger problem, so Intel's job will be to convince investors that it's on the right path to solving that underlying problem.

Ashraf Eassa owns shares of Intel. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$164.92 (0.03%) $0.05
Intel Corporation Stock Quote
Intel Corporation
$34.52 (-2.43%) $0.86

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