Did Apple Really Deal a Blow to Intel?

On April 2, shares of

Up until now (and seemingly until 2020), the compute horsepower required by PCs remains a feather in Intel’s cap for its x86-based chips. We surmise that as Intel’s pursuit of Moore’s Law for its PC and server offerings decelerates, competition theoretically has the ability to bridge the performance gap.

This news does not alter our wide moat rating for Intel, but it certainly corroborates our negative moat trend assessment of the chip titan. Our $41 fair value estimate is also intact and shares still look expensive despite the pullback.

We believe investors should contemplate a few key points when assessing the potential severity of Bloomberg’s report on Intel’s forward prospects. First, Bloomberg indicated that Apple makes up only 5% of Intel’s total revenue, and this estimate appears reasonable to us. Apple held 7.6% market share in PC units during the fourth quarter of 2017 (per Gartner). Macs and MacBooks will typically require a higher-functioning chip than a basic Windows PC, meaning Apple’s PC business probably contributes higher prices and anywhere from 10%-15% of Intel’s client computing group, or CCG, sales. Yet, even Apple-centric PC processors carry far lower ASPs than what Intel earns on server processors, which is one of the firm’s faster growing, and higher margin, segments. Complicating matters is the fact that CCG also includes Intel modems used in iPhones, which may be unaffected by Apple’s Mac computer chip plans.

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