I've always tried to keep an open and honest relationship with my readers. I always try to carefully lay out my assumptions, and I'm always happy to listen to arguments that run counter to my conclusions and assumptions. I don't purport to know everything (far from it), despite what I believe to be extensive due diligence, but I do my homework and believe that my understanding of both the business as well as the technological side of the Intel (INTC) story allows me to offer up unique insights.
Very recently, the sell-side firm Piper Jaffray reiterated its "underperform" rating and $20 price target on Intel and cited, what I believe, to be unfair assumptions to justify the downgrade. I certainly understand the bearish argument(s) - and there are certainly valid ones - but I believe that the arguments presented by the team at Piper Jaffray simply do not hold water.
So, Piper Jaffray made a big deal about Intel not winning this business [Apple] as though it were a surprise; it's not and anybody seriously following Intel would know that an Apple-Intel foundry deal was never likely, no matter how much short term traders wanted it to happen.
Now, Piper Jaffray believes that since Intel didn't win the Apple foundry deal, and since it's not going to win every Samsung device ever, that it's shut out of the mobile market for CY2014 and CY2015. Are these guys serious?
Do they forget that the tablet market is just beginning and that many companies are playing to win big time? While Intel has a good relationship on the PC side of things with Samsung (and again, Intel is in both the Galaxy Tab 3 10.1" and the Ativ Tab - two flagship designs based on older Atom silicon, not the new good stuff coming later this year), these analysts forget that there's an army of players - all of whom have excellent relationships with Intel - coming to market in force with both Windows and Android tablets (and Intel can participate in both). These firms are,
Of course, it helps that every major Taiwanese ODM will be building around the upcoming "Bay Trail" platform, so you will see the market full of Intel based tablets this Holiday season from all of the aforementioned OEMs.
So, with a huge army of Android and Windows tablets coming with Intel silicon ranging from 7" to 11" and from sub $199 to $499, does it really matter that Intel isn't building Apple's A-chips? No, and in fact, each one of these Windows and/or Android tablets that gets sold is a lost sale for Apple and a market share shift in Intel's favor...and Intel gets more than just foundry margins for these chips.
"IF" Intel had won the Apple business, Covello and his margin minions would have mounted their "LOW MARGINS ARE COMING" horses and rode along the New Jersey beaches, sounding the alarm. He would have hypothesized that Intel would have to sell Apple the parts below cost in order to win business and the Apple products would then cannibalize other Intel products sold at high margins.
It is a beautiful Catch22. Half the analysts pitching one view and half the other.
If you win Apple, it will destroy margins and your business.
If you lose Apple, you can't keep your fabs full and destroy your margins.
He would have lowered INTC from his SELL rating and $16 target to a "REALLY SELL, BUY PUTS, CONVICTION SHORT" list and lowered his target from $16 to $9.42.
Interesting that you bring this up, since YOU pumped it. What a jerk....
Friday Apple Rumors: Alternate Choice (Intel and not TSMC!)
by wallisweaver•Jan 4, 2013 9:49 PMFlag
Alternate Choice: Despite a growing chorus of reports that Apple will partner with TSMC to produce chips for its mobile devices, Forbes notes that many Silicon Valley experts increasingly expect it to tap Intel instead. Apple has been reportedly moving to reduce its dependence on Samsung as a manufacturing partner as the two companies have become global competitors in the mobile device market. Previous rumors have suggested the TSMC has begun preparing test runs to make Apple’s A6X mobile processors. However, MKM Partners analyst Daniel Berenbaum suggest that Intel is a more logical choice for the role since it’s greater chip-making capacity could allow it to act as an Apple chip foundry without the need for new capital investment. Rumors suggest that TSMC has been investing heavily to accommodate Apple’s anticipated orders. But Berenbaum says that TSMC’s chip-making capacity remains too restricted to meet Apple’s heavy demand