Earlier this month, Bloomberg reported that Apple (NASDAQ: AAPL) has greenlit a plan to begin moving its Mac processors away from Intel-(NASDAQ: INTC) based processors and toward Apple-designed ones.
Such a move would obviously hurt Intel's personal computer chip business, likely resulting in a revenue reduction in the neighborhood of $3 billion annually (assuming that Apple switched entirely away from Intel).
Image source: Apple.
I don't think we have the whole story available yet. For example, does Apple, in fact, plan to switch entirely away from Intel chips in the Mac, or does it only plan to shift some Mac computers over to Apple-designed chips? Nevertheless, if we assume that a wholesale switchover is what Apple has in mind, there's one company that'd be set to benefit: Taiwan Semiconductor Manufacturing Company (NYSE: TSM).
TSMC: a likely partner for Apple PC processors
Today, TSMC is Apple's main manufacturing partner for the A-series processors found inside of the iPhone and iPad. TSMC is responsible for building all of Apple's A10 Fusion, A10X Fusion, and A11 Bionic processors that power most of Apple's iPhone and iPad lineup. TSMC and rival Samsung (NASDAQOTH: SSNLF) currently split the orders for the A9 processor that powers the older iPhone 6s-series smartphones as well as the iPhone SE.
Given TSMC's success in winning Apple's chip orders thus far and given the apparent strength of the company's future manufacturing technology roadmap (Apple is expected to use TSMC's latest 7-nanometer technology to build its upcoming A12 chip), I think TSMC is the most likely candidate to manufacture any potential Mac-specific applications processors for Apple.
Apple and TSMC could deepen their collaboration
If Apple were to go all-in on trying to build a truly leadership set of processors for its Mac computers, then I would expect Apple to work closely with TSMC to customize variants of its chip manufacturing technologies specifically for chips that target the kind of power envelopes at which a chip powering a Mac would run (e.g., 15W to 45W).
That customization, coupled with design, architecture, and software work on Apple's part, could lead to a final product that's quite compelling and potentially worth moving away from Intel for (especially given Intel's ongoing manufacturing struggles).
The impact on TSMC's business
Since Apple's Mac lineup is relatively small -- Apple ships about 20 million Mac computers each year -- Apple would only be buying a maximum of 20 million chips from TSMC each year to support an all-Apple-processor-powered Mac lineup.
While such chips would likely be a bit larger than the typical iPhone/iPad chips (meaning that TSMC would generate more revenue per Apple-designed Mac chip than it currently does from the iPhone/iPad chips), the potential revenue impact would be a nice boost, but nothing game-changing.
Putting some numbers to this, IHS Markit estimates that the A11 Bionic chip runs Apple $27.50, so if we assume that Apple pays TSMC around $35 for a more complex Mac chip, then the potential revenue boost to TSMC would be on the order of $700 million annually, or a mere 1.9% increase from the $36.7 billion in revenue that the contract chip manufacturing giant is expected to generate this year.
Nothing to sneeze at, but nothing that would fundamentally change the investment thesis around TSMC, either.
More From The Motley Fool
- 3 Growth Stocks at Deep-Value Prices
- 5 Expected Social Security Changes in 2018
- 6 Years Later, 6 Charts That Show How Far Apple, Inc. Has Come Since Steve Jobs' Passing
- 10 Best Stocks to Buy Today
- The $16,122 Social Security Bonus You Cannot Afford to Miss
- Bitcoin's Biggest Competitor Isn't Ethereum -- It's This
Ashraf Eassa owns shares of Intel. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.