Intel Corporation (NASDAQ:INTC) is moving further from the past glory of Microsoft. The company now tends to grow more in the mobile field, and as the two companies’ shares are expected to increase, it will require even more imagination and creativity to skyrocket prices.
The former CEO of Intel was Paul Otellini. He resigned in November 2012. Andy Bryant, Chairman of the Board, announced the great importance of employing Intel Corporation (NASDAQ:INTC)‘s technological power to improve its position inside the mobile phone market. QUALCOMM, Inc. (NASDAQ:QCOM) has dominated the wireless market for years, and this makes the idea of conquering this same market quite a challenging task for Intel. Two different processors, the Snapdragon 600 and 800, are expected to be delivered by QUALCOMM, Inc. (NASDAQ:QCOM) in 2013. Intel is working hard to catch up with QUALCOMM, Inc. (NASDAQ:QCOM), and it has increased its budget for capital spending from $2 billion to $13 billion in 2013. The Chief Executive of Intel should try to choose the proper equilibrium in order to reach the mobile phone expansion without risking profits.
Based on the newest data from 2013, there was an increase in Apple Inc. (NASDAQ:AAPL)’s smartphone market percentage by 3.5 points, reaching 37.8%. Because Apple is the predominant smartphone player, the new CEO is going to make Apple the main target in an effort to move Intel Corporation (NASDAQ:INTC) further into the mobile market.
Apple shows concern about Samsung Inside
Samsung and Apple Inc. (NASDAQ:AAPL) have a patent case between them that implies more difficulties into their relationship. Apple, at the moment, designs its cellphone chips using technology from ARM Holdings, a company that competes directly with Intel.
Apple spent a lot of money developing its unique smartphone chip designs that are in line with the ARM architecture to incorporate in its mobile devices. Apple Inc. (NASDAQ:AAPL) uses processors to gain more control and enable applications to run across its products without any need for modifications. The company spent $400 million to get control of chip companies Intrinsity and PA Semi. Millions of dollars have also been spent to licence the technology for ARM chips.
Intel is ready to offer top technologies and capacity
Doug Freedman, an RBC Capital Markets analyst, has predicted that the presence of different processors in mobile devices from Apple could lead to more complications, but Apple may still consider creating new relations with Intel. In this scenario, Intel Corporation (NASDAQ:INTC) would be able to build ARM-based chips that were designed by Apple, in return for usage of the X86 processors in some of the new Apple devices, such as the new generation of iPad. Apple Inc. (NASDAQ:AAPL) could secure the necessary capacities by cooperating with Intel. With this arrangement, Apple will be able to use smartphone chips that are top-rated in the world of technology.
The effect on Apple and Intel
Moving the production of iPad and iPhone chips to Intel could possibly result in an extra $4.2 billion in income in 2015 for the chipmaker, with a 50% gross margin, based on the statements from analyst Shawn Webster of Macquarie Group. Centered on the data created by the analysts, the estimated revenue for Intel for fiscal year 2013 will be $54.07 billion, and for fiscal year 2014 it will be $56.84 billion. The sales of personal computers are gradually slowing down, but the additional revenue of $4.2 billion will give a great boost to Intel’s earnings. However, the gross margins of Intel Corporation (NASDAQ:INTC) are expected to decrease from 62% in 2012 to 60% this year.
The relationship between Intel and Apple could ease the troubled relationship between Samsung and Apple, and also avoid conflicts in the future. Apple could use Intel’s large production capacity and top technologies for its benefits. For Apple shareholders, this is a particularly good scenario.
Essentially, these companies are both producing large cash flow, and they both have very good balance sheets. Some of the most important favorable factors for Intel are:
The operating and net margin of 27.4% and 20.6%, respectively, are higher than the industry average of 22% and 17.1%.
Based on a three-year average, Intel Corporation (NASDAQ:INTC) has a revenue growth of 14.9%, versus the average industry growth of 11.9%.
The return on equity of 22.7% is stronger than the industry average of 20.2%.
A few essential positive factors for Apple Inc. (NASDAQ:AAPL) are:
It has an operating margin of 33.5% and a net margin of 25.4%. The industry averages are 11.5% and 13.6%, respectively.
It has a three-year average revenue growth rate of 53.9%, versus the 8.0% average industry growth.
P/B and P/E are 3.2 and 10.6, respectively. The industry averages are 3.9 and 15.0.
The bottom line
Both companies are able to operate efficiently, with or without any partnership and on their own. They are both able to generate large quantities of cash. Intel has P/E of 12.1 and Apple has P/E of 10.6. This makes it difficult for different investors to find better bargains from other companies. Apple Inc. (NASDAQ:AAPL) and Intel Corporation (NASDAQ:INTC) could work together and create a win-win situation. This could significantly increase the price of the shares for both companies. The partnership between Intel and Apple would be a logical decision, and there would be limited risks for both companies right now.
The article Is Intel Moving Closer To Producing Chips For Apple? originally appeared on Fool.com and is written by Marcus Vilkas.
Marcus Vilkas has no position in any stocks mentioned. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple, Intel, and Qualcomm. Marcus is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
