Appleís blowout earnings for the quarter that just ended has huge ramifications for the entire semiconductor industry as suppliers align much closer to them or figure out how to minimize the damage that is to come through the rest of 2012. The immediate implication is that Wall St. will likely toss to the sidelines any semiconductor vendor or Foundry that is not clearly in the Apple Camp today or in the very near future. On a second and more important note, this enhances my confidence that Intel will be supplying silicon to Apple by the end of the year and has put in place a multi-year processor development partnership.
In the past quarter, Apple was able to close the gap with Android smartphones by increasing iphone market share by 17% (see graph to the right). The likelihood is that they are on the path to exceeding Android sometime in the next two quarters. Combined with the strong growth in iPADís and the MAC PC line, Apple has carved out a position that will be hard to assail. Looking at the stock prices of various semiconductor vendors after Apple reported, one sees that Qualcomm and Broadcom are viewed as big beneficiaries. On the flip side, nVidia was down as their market opportunity with Tegra in phones and tablets will now shrink. In addition, they will now have to battle AMD for Appleís MAC PC business.
As mentioned in several previous blogs (here and here), Intelís large capex spending in 2011 to build out 22nm and this yearís even larger CAPEX to build two new 14nm fabs, thus doubling capacity, can only be logical if they have Apple as a customer. In addition, the huge 21% increase in Intelís R&D budget is likely to go beyond the development of purely x86 processors and 4G/LTE baseband communications chips. Apple has plenty of reasons to want to leverage an Intel relationship. First and foremost it must reduce the risk of depending only on Samsung and secondly, there is a lot Intel can offer in terms of future processor design and technology.
Last summer, I speculated that a joint x86-ARM processor effort between Apple and Intel that supports simultaneous iOS and OS-X operating systems running on Tablets and MAC Air PCs could be in the works. The benefit to the user is to allow the iOS to run most of the time (non-Office Mode) for best battery life and fastest response time. With the x86 functionality, it would be possible for Apple to sell into the corporate world a much higher costing tablet that meets the check box of both iOS applications plus Office Applications and therefore blunt a Windows 8 tablet attack coming from PC manufacturers like Dell and HP starting late 2012. Dell and HPís only roadblock to keeping Apple out of corporate would be gone and in fact would be at a disadvantage with the lack of iOS applications support on their tablets. Suddenly the corporate world makes a shift to Apple. Microsoft will be the big loser.
For consumers, the story also gets stronger as Apple offers the same CPU but with the x86 disabled for entry-level models. With a click of a button on iTunes users will be given the opportunity to upgrade at a reasonable price point that provides generous margins to Apple. The reconfiguration will be done remotely of course.
Apple, as one can see, is in the drivers seat and although they are now the most valuable company in the world in terms of market cap, they have just begun to tap into the rich veins of the consumer and corporate computing markets. To get where they are going, they will need to enter into (if they havenít already) a heavy engineering collaboration with Intel on new processors on the leading edge process combined with the latest packaging technology. This collaboration must be in place for new processors that arrive 2, 4, and maybe as far as 6 years down the road to maximize impact.
FULL DISCLOSURE: I am Long AAPL, INTC, QCOM, ALTR
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