On April 2, Bloomberg reported that Apple (AAPL 0.61%) intends to use internally designed processors in future Mac personal computers "as early as 2020."
Apple's Mac lineup is currently exclusively powered by processors from Intel, so Intel stands to see a significant reduction in personal computer-related revenue (I estimate it to be in the ballpark of $3 billion in annual sales).
Image source: Intel.
The initiative to replace Intel processors with Apple-designed chips in the Mac, Bloomberg reports, is known as "Kalamata."
I reached out to Intel for comment and a spokesperson told me that Intel doesn't comment on speculation about its customers.
Let's go over what this means for both Apple's and Intel's respective businesses.
More control for Apple
By taking control of the design of the processors that go into the Mac, Apple can more finely tune its processors to meet the exact needs of its systems. Merchant chip vendors like Intel typically develop processors with a wide range of customer requirements in mind, necessitating compromises for everyone involved.
Apple can more precisely calibrate the level of performance it wants and also be more agile in incorporating new features and technologies than Intel is.
Additionally, by cutting Intel out, Apple won't be subservient to Intel's product development schedules, which have proven unreliable in the past thanks to the significant manufacturing struggles that Intel has faced. Apple can ensure a more reliable product rollout if it controls the design of its chips and works with more reliable third-party contract chip manufacturers to manufacture those chips.
A big loss for Intel
There's no way to spin this positively for Intel, at least in terms of the financial impact -- Intel's revenue and profits will take a reasonably significant hit if this transition happens (and Bloomberg is a reputable publication with real sources, so I think the odds are good that this is legitimate). The $3 billion in relatively high-margin revenue disappearing will hurt, though it's hardly going to deal a crushing blow to Intel, which generated $62.8 billion in revenue during 2017.
Although there will be some who claim that Intel would've lost the Mac business irrespective of its own execution, I disagree. The Mac makes up a relatively small portion of Apple's overall revenue and the process of developing custom Mac processors and migrating all current Mac software to run on Apple's A-series processors is going to be a costly and painful measure.
Apple wouldn't go through with this unless it had a really good reason to. A good reason, in this case, would be a loss of confidence on Apple's part that Intel can design and build the world's best processors for personal computers.
In recent years, Intel's innovation in the PC market has stalled, and that has been largely due to continued manufacturing flops on Intel's part, and I wouldn't be surprised if those problems contributed to Apple's decision to try to take a crack at its own personal computer processors.
Here's hoping that Intel learns the lesson that there are significant and potentially painful consequences from failing to execute and sharpens its execution in both processor design and manufacturing technology to avoid any further painful customer defections in the future.
