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Intel Roundup: Apple Dumping, New Chips, WindRiver Sale


Stocks can move heavenward or fall back to earth based on the latest rumors doing the rounds. Intel’s INTC stock did a little back-to-earth movement last week after Bloomberg said it could lose a key customer. Here are the details-

Will Apple Dump Intel?

Intel shares plunged in response to a rumor that Apple AAPL was planning to replace Intel chips with its own ARM-based A-series chips code-named Kalamata as early as in 2020. The rumor came from Bloomberg this time, so investors reacted strongly.

There appear to be good reasons for Apple to do so-

First, according to data provided by IDC, Apple’s PC market share has grown to 8.2% in 4Q17 from 7.7% in 4Q16. Apple and HP were the only major vendors that saw meaningful growth in the fourth quarter. Apple could be looking to increase internal efficiencies by streamlining the entire manufacturing process, driving further margin improvements while improving customer satisfaction.

Second, Apple is the only one among existing PC makers with the financial and other resources to develop its own chips. It has gradually built its internal production capabilities to move away from chip makers, the latest split being with Imagination Technologies.

Third, Apple has a history of doing this with its iOS devices and the results have been positive for the company.

Fourth, while PCs remain its largest revenue contributor, Intel is in the process of transitioning into a data-focused company. This may take several years, but in the meantime, it is broadly expected to adopt new manufacturing processes in its server production lines first.

Fifth, analysts agree that Intel’s process lead on Taiwan Semiconductor is practically negligible at this point, i.e., TSM’s first chips on its 7nm process are expected to be comparable with the first chips from Intel’s 10nm one.

But Intel investors shouldn’t be overly concerned.

First, Apple accounts for 4-5% of Intel’s revenue, so a total loss of Apple’s business would have a relatively small impact on Intel. Particularly so because Apple is expected to continue buying baseband chips from Intel, at least in the foreseeable future, so even if the processor business moves away, the baseband business will remain.

Second, Apple is in a huge fight with Qualcomm QCOM, so it’s banking on its relationship with Intel as the alternative source. This offers Intel some leverage.

Third, Microsoft MSFT and Qualcomm are working onWindows 10 laptops powered by Qualcomm's Snapdragon 835 processors and investors might be concerned that Apple going its own way perpetuates the ARM invasion on Intel. But note that that this doesn’t mean a total move away from Intel silicon. What it probably means is that there will be different versions of devices on the market. As Intel continues to launch new chips that are more powerful and energy efficient, its continued strength at the higher end appears assured, at least for now.

New Chips from Chipzilla

Continued delays in its 10nm process have been a disappointment for Intel bulls, but the company has filled the gap with new chips every year that also included performance and power improvements on the mature 14nm, 14nm+ and 14nm++ processes.

The latest in this lineup, dubbed the 'Coffee Lake' H series and U series were announced last week, along with the H370, H310, Q370 and B360 chipsets. It has also integrated its Optane memory with the new chipsets (except the H310) to support hard drive speeds that can match SSDs in some cases.

Intel’s goal is very apparently to bring the very best performance to laptops no matter the size, purpose or price point. This will also see it competing better with Advanced Micro Devices AMD on the low end.

To that end, it has increased the number of cores in the new processors to four or six, in some cases doubling them, also increasing the number of threads to maximize performance. The Coffee Lake H series chips for instance bring 6 core processors to laptops for the first time (Core i7, Core i9, and Xeon models). The Coffee Lake U series on the other hand upgrade the Kaby Lake U series with improved graphics and power efficiency while doubling the embedded memory among other things to boost speeds.

The Wind River Sale

In keeping with its goal of becoming a data centric company, Intel is trimming its operations where required. So the embedded software business it acquired back in 2009 for $884 million is now moving to private investor TPG Capital for an undisclosed sum. TPG also bought its McAfee security business last year for $4.2 billion.

Intel shares have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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