Earlier this year, Bloomberg reported that Apple (NASDAQ:AAPL), which has a strong internal chip development organization, "is planning to use its own chips in Mac computers beginning as early as 2020, replacing processors from Intel (NASDAQ:INTC) Corp."
That story led to a meaningful drop in Intel's shares.
Last week, Ming-Chi Kuo, an analyst with TF International Securities, published a research note (reported by MacRumors) in which he lays out his expectation that Apple will, in fact, swap Intel chips out for its own processors in the Mac "starting [in] 2020 or 2021."
Let's take a closer look at his reasoning.
Four key points
The first reason he gives is that "Apple could control everything about the Mac's design and production and be rid of the negative impacts from Intel's processor shipment schedule changes."
Next, Kuo claims that Apple moving to an in-house design would lead to "better profits thanks to lower processor cost." The idea here is that while building its own processors would require significant up-front development costs (though hypothetical Mac processors would likely leverage much of the technology that's already been developed for iPhone and iPad chips), the cost of goods sold per chip to Apple would be lower.
The third point that Kuo makes is that Apple could enjoy "Mac market share gain if Apple lowers the price." In this case, though, instead of pocketing the bill of materials cost savings that Apple would enjoy from lower processor unit costs, it'd use those to reduce Mac prices, which Kuo thinks could spur increased demand for the Mac. (Although, in this case, Apple would be sacrificing the potential per-unit profit increases that Kuo mentioned in the last point.)
And, finally, Kuo says that moving to an in-house chip design "could differentiate Mac from peers' products." Now, simply being different isn't valuable in itself -- Macs with Apple's in-house chips would need to enable capabilities and experiences that wouldn't be possible with Intel chips.
A potential win for TSMC and a loss for Intel
Keep in mind that Apple sells a fairly broad range of Macs, from its slim MacBook all the way to the Mac Pro desktop product line. Neither Bloomberg's report in April nor Kuo's more recent note indicated which of the Mac product lines would be moved over to Apple-designed chips first or if they expect Apple to migrate its entire Mac portfolio to in-house chips in one shot.
Nevertheless, were Apple to do this migration, Intel's revenue and profits would clearly take a hit while the company that manufactured the chips on Apple's behalf would benefit.
According to Kuo, that beneficiary will be Taiwan Semiconductor Manufacturing Company (NYSE:TSM). TSMC is currently the sole manufacturer of the chips that power Apple's current iPhone and iPad portfolios, and Kuo expects that Apple will tap TSMC to build the applications processors that power the 2019 and 2020 iPhones. It'd be a surprise if TSMC weren't the manufacturer of any potential Apple-designed Mac processors.