Intel Corporation (NASDAQ:INTC) has had a rough start to 2018 with the Meltdown and Spectre chip vulnerability mess. But that was nothing. INTC stock was down over 9% at one point yesterday — its biggest drop in over two years — after reports that Apple Inc. (NASDAQ:AAPL) will ditch Intel processors in its Mac computers starting in 2020, in favor of a custom Apple CPU.
It’s just a rumor at this point, but the prospect of a custom Apple CPU is all too plausible. INTC stock closed the day down 6%.
Bloomberg: Apple Ditching Intel for Mac Starting in 2020
Citing “people familiar with the plans,” Bloomberg reported that Apple is planning to replace the Intel CPUs that power its Mac computers with a custom Apple CPU. The transition –code named “Kalamata” would begin as early as 2020 according to Bloomberg’s sources.
That’s on the hardware side. The foundation is already being laid on the software side. With last fall’s High Sierra macOS update, the company switched Macs to the Apple File System that is used by iOS. Apple has been working to bring features between it’s mobile operating system and macOS closer together. And previous rumors have had another Apple project –this one code named “Marzipan”– bringing the ability for Macs to run iOS apps later this year.
Intel refused to comment on the report, as did Apple. So at this point, we’re still dealing with speculation, but where there’s smoke there is often fire. INTC stock’s drop shows Intel investors are taking the report seriously.
Apple’s Done This Before
Disrupting an entire established user base by switching platforms and designing its own custom CPUs for key products are two things that Apple has done in the past.
The company’s most important products, including the iPhone, iPad, Apple Watch, Apple TV and HomePod are powered by a custom Apple CPU. Apple has over a decade of experience in designing its own processors. It also has a proven history of using the combination of custom silicon and controlling its own operating systems to maximize performance compared to the competition.
So far, Apple hasn’t yet pulled off that one-two punch on the Mac. But ditching Intel for a custom Mac CPU sets it up to try. And doing so would seriously leapfrog the Windows PC competition.
In the past, Apple has already moved its entire Mac platform from one processor family to another. In 2005, Apple announced it was transitioning the Mac from PowerPC processors to Intel.
And in a move that may have been the key hint that Apple was up to something, the company launched a new MacBook Pro in 2016. This laptop included a TouchBar that was powered by a custom Apple CPU called the T1. The Intel silicon was still the brains of the MacBook Pro. But this was a first. AAPL introduced a key new hardware feature and farmed off its operation to a co-processor similar to the chips it had designed for the Apple Watch.
Potential Long-Term Impact on INTC Stock
The initial shock has hit INTC stock in a big way. But in the long term, the direct impact of Apple ditching Intel wouldn’t be that big. As Bloomberg points out, Apple is responsible for just 5% of Intel’s revenue. And some of that is the modems that have begun showing up in iPhones. That line of business wouldn’t be impacted, and could very well grow as a result of Apple’s feud with QUALCOMM, Inc. (NADAQ:QCOM).
Speaking of Qualcomm, one of that company’s nightmare scenarios is Android smartphone manufacturers employing Apple’s strategy by ditching the Snapdragon and making their own smartphone CPUs. Samsung and others have taken steps in that direction. However, with PCs a declining business, it seems unlikely that PC manufacturers would follow Apple’s lead in designing their own computer CPUs. So INTC stock shouldn’t face that particular threat.
Intel started 2018 with the fallout from Meltdown and Spectre. It’s still dealing with that mess, which exposed vulnerabilities in its CPUs that have required a series of patches.
The report of a custom Apple CPU booting Intel CPUs from Macs within a few years is more bad news for INTC stock.
Yet despite all the gloom –and yesterday’s fall– Intel stock remains up over 4% since the start of the year. The question is: how much more bad news can the company take and still keep up that performance?
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
