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Apple expected to reveal first Macs with custom ARM-based processor

Apple is expected to unveil its ARM-based Macs during the company's ‘One More Thing’ event. Santosh Rao - Manhattan Venture Partners Head of Research joins Yahoo Finance to discuss.

Video Transcript

AKIKO FUJITA: Let's bring in Santosh Rao. He is the head of research at Manhattan Venture Partners. Santosh, Dan just talked about what this means for consumers. What does this mean for Apple and its ability to control the supply chain in a year where they've had so many hiccups?

SANTOSH RAO: Yeah, so I think this is all about controlling their whole ecosystem, their hardware ecosystem. And they just want more design flexibility. They want more security features, more, like, the thermal and battery power. They want to increase that.

So it's all about controlling that, bringing it in-house, and just going forward, just driving the whole ecosystem on their own. Get the synergies or kind of the co-dependent between software and hardware, kind of develop that, give the developers more tools to develop apps on there. So I think it's all about controlling the ecosystem. And that's what-- it's good for the consumer in the end.

DAN HOWLEY: Santosh, this is Dan. I want to ask you, we talk about giving Apple more control. And I was wondering if this is really kind of their way of kind of making themselves fully in control of their hardware ecosystems.

But to a degree, they still rely on the likes of Qualcomm for their 5G chips, you know, Samsung for various hardware pieces. I guess, is this kind of-- is this maybe its way of saying, look, we're going to start getting more into producing our own hardware exclusively? Do you think they're going to move away from licensing? Or do you think they're going to continue on pace and that this was mostly just about Intel not being able to keep up with the rest of the CPU industry?

SANTOSH RAO: Yeah, I think that's definitely a big part of it. Intel was slowing that. They slowed down Apple's own progression. I think ultimately, they want to control everything. I'm sorry, I missed the earlier part of the question. But essentially, I think what this will do is bring stuff in. I lost my train of thought. What was the earlier question on that? What were you adding to it?

DAN HOWLEY: Do you think that they're going to start to go ahead and produce their own kinds of memory, their own kinds of displays, things along those lines--

SANTOSH RAO: Yes, yeah, I got it. Yeah, it's a two-year process. Nothing's-- this is just the first step towards getting everything in-house. So I think that's going to take a while. So they've already said the whole transition from Intel to Apple is going to take about two years. And then, slowly down the road, they may want to go there as well and other parts of the ecosystem also.

But at this point, it's more about the chips, about the inefficiency of Intel and providing what Apple needs on a timely basis. They want to do it. They feel they can do it much better, save costs, and by some estimates, close to 60% savings at some point, if they bring everything in-house. So I think that's what it's all about. I think efficiency, timeliness, and all of that. So I think that's where it's going at this point.

ZACK GUZMAN: Santosh, I mean, you talk about the upside there. And obviously, cost savings always a pretty good thing to lock in there. But it does come with some considerable risks when you think about what could go wrong and how important Macs are for the business. Talk to me about what those risks look like to you in terms of how this might not go as swiftly or as cleanly as maybe they hope.

SANTOSH RAO: Yeah, I mean, it's a big risk. I mean, people rely on Apple, and they're known for their efficiency. The products are very slick, and they perform very well. So I think you don't want any hiccups. So I think that's why it's going to be a slow transformation or a slow movement away from Intel.

So if there are any hiccups, I'm sure things will slow down. But at this point, they want to go incrementally. And over the two-year period, I'm sure they'll have enough time to fix any problems that they have. But I think doing it right is very important for them. A lot of people watching this, so they don't want to mess this up. But I think for all-- knowing Apple and how efficient they are, I'm sure they'll get it right.

DAN HOWLEY: But Santosh, as far as the new chips go and the ability for iOS apps to work on Maps, do you think that will kind of dilute the ecosystem on the iPhone or iPad? Will we see kind of the capabilities shrink over there while they expand on Mac? Or do you think it will be kind of just standardized across the board and we'll see, you know, one app for all of the different platforms?

SANTOSH RAO: Yeah, I think that's the plan. I would think that's their ideal scenario, where they get one standardized across all their product lines. I think that's where they're going. I think that's what they want. But it's going to take some time. I mean, every product has its own requirements. But over time, I'm sure. I think that's the plan. That's where they want to go, where they standardize it and make it more efficient in that sense.

AKIKO FUJITA: Santosh, we've seen a number of announcements come out from Apple over the last month or so. I want to ask you about the iPhone 12 and just where you see the demand right now. We're, of course, going into the busiest time for Apple, the holiday season. What have you taken away from the demand so far? And ultimately, since we've been talking so much about devices, is the stock still about the devices? Or is it about the services? How are you rating that?

SANTOSH RAO: Oh, absolutely. iPhone 12, the 5G supercycle, I think that's the next big catalyst. Everyone's watching that. And from some reports out there, the preorders are pretty strong. So fourth quarter numbers, the December quarter numbers, you will see good numbers there.

So I think it's all about the iPhone, that's for sure. But then, everything around it, the services part of it, also is big. That's their anchor right now. So I think you will see that as well. But no question about it. iPhone 5G sales, the super cycle, as they call it, is very important for the next leg up for Apple.

AKIKO FUJITA: Santosh Rao, the head of research in Manhattan Venture Partners, good to talk to you.

SANTOSH RAO: Thank you. Thanks for having me.