Apple Could Move 'Intel Outside'

NEW YORK ( TheStreet) -- Apple ( AAPL) is reportedly thinking about moving away from Intel ( INTC) chips in its Mac line of computers, which could be a serious detriment to the world's largest chipmaker. The impact wouldn't be felt for a few years though, said analysts.

Bloomberg reported Apple is looking into moving away from Intel chips, The rumor isn't new, said Societe Generale analyst Peter Knox in a research report. Apple would not switch over for a few years, as processors using technology from ARM Holdings ( ARMH) aren't able to produce the power performance of Intel's chips just yet.

"We believe that such a switch could be possible but even this latest speculation suggests that this is only a 2017+ prospect. In addition, the processing power performance needed for Apple PC products would require a significant step up in ARM core processing power which could compromise its power/performance benefits, particularly vs Intel's new 8W Haswell processor," KNow wrote in a research report. He rates ARM shares sell with a 370 pence price target.

Apple and Intel have a relationship which stretches back several years, with Intel CEO Paul Otellini dressing up in a white suit at an Apple conference in 2005 alongside Steve Jobs, announcing the deal. Yet, Apple has always moved towards owning the entire ecosystem, one reason why Intel does not provide processors for Apple's iOS devices.

Piper Jaffray analyst Gus Richard said he believes the move to vertical integration, in which companies design their own chips, is happening more and more, citing rumors that Amazon ( AMZN) would buy Texas Instruments' ( TXN) OMAP unit, and perhaps the reason Google ( GOOG) bought Motorola.

"All these datapoints are clear evidence of a shift away from merchant silicon to internally designed silicon," Richard said in his research note. He rated ARM overweight with a $33 price target, and Intel neutral with a $19 price target.

The other reason, and perhaps the more important reason, is that -x86 architecture inherently consumes more power than ARM-designs. Smartphones and tablets such as the iPhone and iPad have strong battery life, but that would be cut considerably if Intel chips were put into these devices.

ARM recently announced 64-bit chips, the Cortex-A53 and -A57, which could provide the catalyst for Apple designing its own chips for its Mac line. BNP Paribas analyst Jerome Ramel said he believes the 64-bit chips will allow ARM to address the server and computer markets, which demand higher performance chip sets.

"The 64-bit processors were the missing products for ARM to be credible in the PC/Servers space," Ramel wrote in his note. "Now ARM has all the tools to address the PC/Servers markets and needs the software tool ecosystem to be developed." He rated ARM neutral with a 670 pence price target.

Piper Jaffray's Richard noted that Apple represents roughly $3 billion, or 5% of Intel's revenue, so this would be a significant chunk of lost revenue should Apple decide to move to its own chips.

As part of Scott Forstall leaving Apple, Bob Mansfield is leading a new group at Apple, known as Technologies. Technologies combines all of Apple's wireless teams. Technologies also includes Apple's semiconductors group, which according to the press release announcing the transition has"ambitious plans for the future."

These "ambitious plans" are already manifesting themselves in Apple's fourth-generation iPad. Perhaps the most important announcement at Apple's iPad Mini event was the introduction of the A6X chip in the fourth-gen iPad, which doubles the speed of the previous iPad.

Apple iPad Mini Event: Blog Recap

The significant jump in speed and processing power from the third-generation iPad to the fourth-generation demonstrates Apple has serious plans for its semiconductor group, especially now that Mansfield is leading the way.

Apple dropping Intel as a supplier wouldn't be a death-knell for the Santa Clara, Calif., chipmaker, but it would signify that Intel needs to seriously step up its game in mobile chips.

Instead of "Intel Inside" being its slogan, it may be "Intel Outside" before too long.

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-- Written by Chris Ciaccia in New York

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