Please ensure Javascript is enabled for purposes of website accessibility

Here's Who Wins If Apple Inc. Ditches Intel Corp.

By Ashraf Eassa – Apr 18, 2018 at 7:13AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This chip manufacturer could stand to win from Apple switching away from Chipzilla.

Earlier this month, Bloomberg reported that Apple (AAPL -4.91%) has greenlit a plan to begin moving its Mac processors away from Intel-(INTC -2.76%) based processors and toward Apple-designed ones.

Such a move would obviously hurt Intel's personal computer chip business, likely resulting in a revenue reduction in the neighborhood of $3 billion annually (assuming that Apple switched entirely away from Intel).

An Apple MacBook Pro.

Image source: Apple.

I don't think we have the whole story available yet. For example, does Apple, in fact, plan to switch entirely away from Intel chips in the Mac, or does it only plan to shift some Mac computers over to Apple-designed chips? Nevertheless, if we assume that a wholesale switchover is what Apple has in mind, there's one company that'd be set to benefit: Taiwan Semiconductor Manufacturing Company (TSM -3.95%).

TSMC: a likely partner for Apple PC processors

Today, TSMC is Apple's main manufacturing partner for the A-series processors found inside of the iPhone and iPad. TSMC is responsible for building all of Apple's A10 Fusion, A10X Fusion, and A11 Bionic processors that power most of Apple's iPhone and iPad lineup. TSMC and rival Samsung (NASDAQOTH: SSNLF) currently split the orders for the A9 processor that powers the older iPhone 6s-series smartphones as well as the iPhone SE.

Given TSMC's success in winning Apple's chip orders thus far and given the apparent strength of the company's future manufacturing technology roadmap (Apple is expected to use TSMC's latest 7-nanometer technology to build its upcoming A12 chip), I think TSMC is the most likely candidate to manufacture any potential Mac-specific applications processors for Apple.

Apple and TSMC could deepen their collaboration

If Apple were to go all-in on trying to build a truly leadership set of processors for its Mac computers, then I would expect Apple to work closely with TSMC to customize variants of its chip manufacturing technologies specifically for chips that target the kind of power envelopes at which a chip powering a Mac would run (e.g., 15W to 45W).

That customization, coupled with design, architecture, and software work on Apple's part, could lead to a final product that's quite compelling and potentially worth moving away from Intel for (especially given Intel's ongoing manufacturing struggles).

The impact on TSMC's business

Since Apple's Mac lineup is relatively small -- Apple ships about 20 million Mac computers each year -- Apple would only be buying a maximum of 20 million chips from TSMC each year to support an all-Apple-processor-powered Mac lineup.

While such chips would likely be a bit larger than the typical iPhone/iPad chips (meaning that TSMC would generate more revenue per Apple-designed Mac chip than it currently does from the iPhone/iPad chips), the potential revenue impact would be a nice boost, but nothing game-changing.

Putting some numbers to this, IHS Markit estimates that the A11 Bionic chip runs Apple $27.50, so if we assume that Apple pays TSMC around $35 for a more complex Mac chip, then the potential revenue boost to TSMC would be on the order of $700 million annually, or a mere 1.9% increase from the $36.7 billion in revenue that the contract chip manufacturing giant is expected to generate this year.

Nothing to sneeze at, but nothing that would fundamentally change the investment thesis around TSMC, either.

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$142.48 (-4.91%) $-7.36
Taiwan Semiconductor Manufacturing Company Limited Stock Quote
Taiwan Semiconductor Manufacturing Company Limited
$69.28 (-3.95%) $-2.85
Intel Corporation Stock Quote
Intel Corporation
$26.38 (-2.76%) $0.75

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.