Friday Apple Rumors: Alternate Choice (Intel and not TSMC!)
The Intel margins are currently in the 60% range with 55% expected this quarter. TSMC margin is 45% as a silicon merchant.
TSMC capacity, yield and historical performance are risks that would be different with Intel as the vendor. Those would have value to a company that needed their CPU on time and in appropriate quantity (Intel).
Margins would probably move down from the 60% - 65% range down to the 55% to 60% range which is where they were when Intel was selling all the netbook Atom chips several years ago. It dropped to a low of 50% during the recessions but was at about 58% during the netbook peak.
There is tremdous value to Apple by having access to Intel fabs. It would help them compete better with Samsung who is chewing into their iPhone market share.
While Intel margins would move down if they became a foundry for Apple, the new revenue number would sky rocket. The lower margin % of the larger revenue number would more than offset. Intel will not fab for Apple without making a profit. Both the extra revenues and profit would be additive to Intel.
That is the bogus argument that Covello makes. One of his unspoken assumptions is that Intel revenues remain constant. If so, his margin argument makes sense. For the last two years, his argument has been wrong.
I'm starting to think it's going to be Intel and Apple, and I never thought that until now. I also think Intel is looking great even if they don't end up working with Apple. I have a feeling it IS going to be Apple with some sort of agreement that Intel won't put chips in Samsung phones.........or can they make such an agreement?
An Apple/Intel deal would be for either foundry or parts.
If it is for parts, Intel has a pricing and negotiating mechanism that they would probably follow. They have to be careful to stay on the legal side of the antitrust laws.
If it is an Apple/Intel fabrication contract, it could be anything but it cannot constrain Samsung from anything like restricting who Intel could do business with. It would probably be structured to require a certain minimum number of wafers or parts and optional access to more without penalty. Intel is not foundry with standard pricing so any agreement is flexible.