Apple Shift to Custom Chips Draws Varied Analyst Reactions

Apple's move away from Intel chips in its Mac line in favor of its own custom processors drew a variety of reactions from analysts.
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Analysts on Tuesday were reacting to Apple's  (AAPL) - Get Report decision to move away from Intel  (INTC) - Get Report chips in its Mac line in favor of its own custom-built processors. 

Shares of the Cupertino, Calif., tech giant at last check were up 1.9% to $365.51. Shares of Intel, the Santa Clara, Calif., chip icon, were little changed at $60.07. 

Apple made the news at its Worldwide Developers Conference. Chief Executive Tim Cook described the move as "historic." 

Analysts' reactions to the switch varied. 

Katy Huberty, an analyst with Morgan Stanley, said the shift toward Apple silicon for the Mac "was the most significant WWDC announcement and highlights how Apple continues to differentiate itself through vertical integration."

"Apple's announced plans to leverage Apple silicon for future Macs further converges the user experience across devices," said Huberty, who has an overweight rating and a $340 price target. 

"The tighter ecosystem combined with upcoming product launches, including 5G iPhones, suggests Apple's 1 billion active user base will continue to grow."

Huberty said the new development means "that iOS and iPadOS applications will be able to run natively on macOS in the future, making it easier for Apple's 23 million developer partners to create applications across all Apple products."

Citi analyst Jim Suva said the core reason for this change was to enable Apple to "better optimize its hardware and software road map for a more optimal consumer experience across multiple devices as well as not having to rely on external suppliers as much."

Suva, who affirmed a buy rating and $400 price target on the shares, said he expected the transition to save Apple $425 million to $850 million a year.

J.P. Morgan analyst Joseph Cardoso, who affirms an overweight rating on Apple, said while it's too early to quantify the transition, it "is likely drive performance and cost advantages as well as harmonize the underlying silicon across the product portfolio."

"From a cost standpoint, we see some potential benefits from the shift but don't expect it to be enough to meaningfully move the needle," said Credit Suisse analyst Matthew Cabral. He says that's because Macs contribute less than 10% of revenue. 

Deutsche Bank analyst Jeriel Ong said that "overall, we are cautiously optimistic on the shift given our past semiconductor experience."

Central processing units and graphics processing units "are notoriously complicated products with high barriers to entry," said Ong, who has a buy rating and a $380 price target on Apple. 

"[And] while AAPL certainly has a solid resume with their iPhone and iPad products producing best-in-class processors, the high-power/high-power consumption world of PCs may offer different challenges."

Apple also introduced iOS14, the latest operating system for Apple's iPhone. It includes newly customizable home screen layouts; greater control of the size, frequency and location of widgets; and enhancements to messages.