Apple Inc. (NASDAQ:AAPL) and Intel Corporation (NASDAQ:INTC) have had a tense relationship in recent years. Apple Inc. (NASDAQ:AAPL) rejected Intel chips for their first iPhone model and have continued to design their own processors for several years. The company has also kept its manufacturing money away from Intel, and handed it to Samsung. That might be about to change.
Intel (INTC) Might Do Business With Apple (AAPL)
According to a new report from Nomura Research, Intel Corporation (NASDAQ:INTC) might be about to get a piece of Apple Inc. (NASDAQ:AAPL) foundry business, but it’s uncertain right now. The key indicators of the change are the new CEO at Intel, Brian Krzanich, who has a background in chip manufacture, and the fact that talks between the companies that have been going for some time.
Apple Inc. (NASDAQ:AAPL) would probably prefer to stop subsidizing its largest competitor, Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930). There are problems with changing chip foundry however, and those seem to have stalled talks between Intel Corporation (NASDAQ:INTC) and the Cupertino company. The bottom line for Apple appears to be that Intel’s foundry is just too expensive.
Samsung has, according to research, restarted its Apple Inc. (NASDAQ:AAPL) Line 17 foundries and the company is set to product the A7 line of chips and the A8 line. After that it’s too difficult to predict, but Intel Corporation (NASDAQ:INTC) will need a serious change to get the business.
Intel will regret missing out on Apple Inc. (NASDAQ:AAPL) business if the Nomura analysis is correct. According to estimates from the analysts, that business could be worth $6-7 billion in revenue at Intel and would likely increase each year. Costs are just too high at the American chip maker, however.
According to this report, Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) is able to offer foundry services at a 20-30 percent lower cost than Intel. Apple Inc. (NASDAQ:AAPL) wants to make a break from Samsung, but it can’t afford to take on extra costs like that in a time when its shares are being pressured by falling margins. Intel is just too expensive.
The report is negative on Intel Corporation (NASDAQ:INTC), and it advises that investors reduce their holdings in the company. A price target of $18 per share is pretty poor for a firm whose shares are trading at more than $24 right now. The 25 percent haircut that Nomura expects is from more than the loss of Apple Inc. (NASDAQ:AAPL) business, however, though that’s symbolic. Intel has not been able to enter the mobile market, and that might kill the company.