A Tale of Three Companies!!
prabha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
For quite a few days now, Apple (NASDAQ: AAPL) is speculated to drop Intel chips and switch over to the same kind of silicon that powers the mobile devices like iPhone and iPads for its MacBooks and Desktops. Presently, Apple relies heavily on Intel (NASDAQ: INTC) to provide processors for its computers — the MacBook particularly. However there could be a day when all Apple’s products run on the same chip, but for now if it happens, it would be a total disaster. Currently iPhone and iPads use ARM (NASDAQ: ARMH) processors. This news has not gone down well with Mac users because ARM processors are perceived to be less powerful than those of Intel. But this is a performance based approach. What is the big picture when these three companies are concerned?
If Apple was to switch to ARM processors it would be a big strategic change for the technology giant. It will be an ecosystem building opportunity where developers are concerned, saying to developers that Apple has the opportunity to increase the size of the total available market for developers to write for. It can also change the perception of computing with features like instant on and greater battery life for notebooks.
According to Brooke Crothers, “Apple likes vertical integration and has a proven ability to migrate software among instruction sets, and can derive adequate performance from non-Intel CPUs” Apple also has patents such as touch Mac, iMac, and MacBook touch which hint that change is inevitable.
Intel has a strong position when it comes to manufacturing of semiconductors and silicon chips. Intel has a very aggressive roadmap with each year bringing either a die shrink or a brand new micro-architecture. Apple will definitely have a hard time competing with Intel but the idea of “good enough” computing is a very real phenomenon and Apple could think of taking the risk. However, we have to see what would be the impact on Intel if this move is made.
Where the Pc world is having difficulty to surge up sales, Apple is busy stealing market share. This makes Apple’s position pivotal as Intel’s dependence on Apple’s revenue stream grows higher. Cannibalization of Mac sales is already hurting Intel and if the switch is made no doubt it would be a negative effect on Intel, but won’t take it down.
As mentioned earlier ARM processors are not perceived as “powerful.” Even with a 64-bit architecture, ARM processors will not offer performance that can be compared to the high end of Intel's line. This might cost Apple as it may have to sacrifice its professional users. ARM may offer some battery life and cost benefits for mainstream laptops, but Intel has intensified research on the same and considering that, long run benefits may not be sizable. But if Apple switches it would be a huge PR win for ARM and according to “MacRumours” Apple has made heavy investments in ARM architecture, acquiring several companies to move the processor design in-house and completely under their control.
There are both advantages and disadvantages of the move. Apple hasn’t strengthened its chip team and silicon isn’t there forte. But Apple has taken risks before; some have worked, others haven’t. So the risk is, if they mis-execute the product line the entire strategy falls flat. On the other hand, if they strike the right chord they could very well challenge Android’s growing market share (currently at 68.1%). Intel will definitely suffer a blow from this strategy while ARM’s position as a silicon manufacturer will be strengthened. But will this move happen? Only Apple management knows.
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prabhamum has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Intel. Motley Fool newsletter services recommend Apple, ARM Holdings, and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.