Rumors have been circulating for a while now of a tie-up between smartphone leader Apple (AAPL) and chipmaker Intel (INTC).
According to a report, Intel has an “army” working on the next modem chip for the Apple iPhone, in a move that would kick rival Qualcomm (QCOM) to the curb. The same report had Apple essentially punting design and production of its Ax line of processors to Intel.
Neither company has confirmed the rumors … and with good reason. I cannot fathom that they would be true.
What Can INTC Offer AAPL?
Let’s start with the modem rumor first. I like INTC and I’m currently long Intel stock. But Intel’s modem offering is really nothing special.
In order to unseat Qualcomm — the existing supplier — Intel would need a modem chip that was significantly better than the status quo to persuade Apple to shake it up.
But that’s not the case at all. In fact, Qualcomm’s new modem reportedly promises better performance than what Intel is offering.
But what about the foundry? Might Apple and Intel be teaming up to build the next generation of processors for the iPhone and iPad?
Maybe…but again, I doubt it.
AAPL currently bases its processors on ARM Holdings (ARMH) architecture and uses Samsung (SSNLF) and Taiwan Semiconductor (TSM) for fabrication. It’s not clear what INTC would offer that would justify a major shift. While Intel’s processors beat the pants off of virtually everyone else in terms of performance, the constant critique is that they are battery hogs.
Of course, there is another possibility, and that is that AAPL and INTC are cooking up something entirely new. Apple and Intel could very well be collaborating on an entirely new product that needs Intel inside. But without any concrete details — and let me repeat that there are none — we’re left with nothing but rumors and innuendos.
INTC, AAPL Stock Worth a Look Anyway
But for shareholders of Intel stock and Apple stock, does it matter?
Not really. Both stocks are cheap, offering pockets of value in an otherwise expensive market. Neither company really needs a partnership in order to justify current stock prices.
Let’s look at Apple stock first.
I did a write up on Apple stock back in September, and I would reiterate the main points here. Apple stock trades at a ridiculously low 11.4 times forward earnings. Stripping out Apple’s gargantuan cash hoard, AAPL trades at a single-digit price-earnings ratio. Not even slow-growth utilities trade at values that low. Mr. Market is essentially saying that Apple is a no-growth company getting ready to slowly wither and die.
Does that really sound plausible to you? This is a company that saw 28% sales growth last quarter.
Yes, the Apple Watch was mostly a flop, and iPad sales are seriously decelerating. But Apple is being valued as if it will never have another hit product again.
Meanwhile, Intel — despite failing to get much of a foothold in mobile – is actually benefiting quite nicely from the rise of mobile and cloud-based computing. Powerful server chips are now Intel’s primary engine of growth. After underperforming for most of 2015, INTC shares have roared back to life since mid-August.
Like AAPL, Intel stock trades at a very reasonable price these days, fetching just 14 times forward earnings.
If some sort of new partnership develops between Intel and Apple, then so be it. I would certainly applaud it. But as an investor, I’m certainly not betting on it.
And at today’s prices, I really don’t need to.
Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog. He is long INTC and AAPL.
