How In-House PC Chip Design Could Impact Apple Stock

In a potential blow for Intel Corp. (NASDAQ: INTC), Apple Inc. (NASDAQ: AAPL) is apparently moving to its own chip design for Mac computers. The tech giant has used Intel chips in Macs since 2006.

After dropping below $230 per share during the coronavirus market crash, Apple stock has hit new highs lately. It closed at $343.99 a share on Tuesday, up 3%.

Intel closed at $63.03, down 1%. In comparison, the S&P 500 closed down 0.8%. Apple shares may have also been boosted Tuesday by a new report on the timing of iPhone 12 production.

In-House Chips

An official announcement about the Mac chips could come as early as this month, according to Bloomberg, which first reported the news. Sources told the news service the move might be announced at Apple’s big developer conference, WWDC, scheduled for the week of June 22.

The new chips would likely be deployed in Macs debuting in 2021. “The new processors will be based on the same technology used in Apple-designed iPhone and iPad chips,” Bloomberg said. “However, future Macs will still run the macOS operating system rather than the iOS software on mobile devices from the company.”

For its custom chips, Apple reportedly will be using technology from Arm Ltd., a division of Japan’s Softbank Group Corp. Microsoft, Lenova and other PC manufacturers are already using Arm-based chips, according to Bloomberg. Apple engineers were reportedly concerned about performance issues with the Intel chips, particularly for heavy graphics and AI applications.

Apple only has about 10% of PC market share, but its Macs sell for a premium and are considered influential in the tech and design spaces. While the iPhone, Apple Watch and Apple TV are increasingly important to the company that Steve Jobs built, it will probably always build computers. Apple CEO Tim Cook has also invested heavily in streaming services, such as Apple Music.

Other analysts don’t expect the Apple news to impact Intel that much. They point out that Apple has previously indicated it would be moving to its own chips. So not much of a surprise, they say.

New Street Research analyst Antoine Chkaiban told Barron’s that Arm-based chips might not be able to replace Intel chips in the more expensive Macs. The problem is that videogames and other big applications, such as the Adobe suite, are optimized to work on Intel chips.

Chkaiban predicts Apple will only use the custom Arm chips in its cheaper laptop lines. New Street has a Buy rating on Intel, with a price target of $90.

Still, Evercore ISI analyst Amit Daryanani called the move “underappreciated” for Apple stock. He said in-house chips could improve Mac gross margins.

“It is encouraging that Apple continues to demonstrate its leading chip design capabilities as in-housing semi design remains key to product margin expansion,” he said. Evercore reiterated its Outperform rating and $360 price target.

Of 43 analysts following Apple, 28 have Buy ratings, 11 Hold and four Sell. The 12-month average price target is $303.49. On Friday, both Wedbush and Credit Suisse boosted their price targets, to $375 and $295, respectively.

Apple recently launched its new 13-inch Macbook Pro, to mostly positive reviews. Tom’s Guide said the new model is “one of the best laptops you can buy.”

iPhone 12 News

Also on Tuesday, DigiTimes reported that Apple is scheduled to begin production of its next iPhone model in July. Apple hasn’t provided any information about a new phone release or what the product may look like. There had been concerns that supply chain issues related to COVID-19 could substantially delay the release.

But the rumor mills have been busy. Many expect the next generation of iPhones to be 5G compatible. To date, Apple hasn’t had a 5G-enabled device, considered the next big thing in the smartphone market. Competitor Samsung already has released what it calls 5G-ready devices.

Apple watchers have been eagerly awaiting a 5G version. Apple sells over 200 million iPhones a year. With a 5G phone, Apple could push that sales figure higher.

Experts say the speed of 5G should lead to a new generation of apps and services that consumers can’t currently imagine. They point to the way 4G made new apps possible, such as real-time mapping for ride-sharing services and advanced graphics features like those on Snap and phone-based games.

Based on leaks, Tom’s Guide predicts Apple will introduce four versions of the iPhone 12. The models will vary in size from 5.4 to 6.7 inches. The iPhone 11 is available in 5.8-, 6.1- and 6.5-inch sizes.