Intel Corporation and Apple Computer Inc.

Posted on April 19, 2006 , filed under Stocks | Print This Post

INTC, Intel Corporation traded as low as $18.99, a new 52 week low, before rebounding with the markets rally yesterday. I believe Intel investors are underscoring the importance of the Intel and AAPL, Apple Computer, Inc. partnership. Various sources have pinned Apple’s share of the PC market at 1.8-7%. I believe computers have become a low cost commodity since the beginning of the decade. One of Apple’s competitive advantages is the company’s strength in industrial design. Apple products, such as the iPod and the Mac mini, are seen as trend setting products and enjoy a loyal fan base. Apple originally announced the transition from IBM’s Power PC microprocessors to Intel’s processors in the summer of 2005. When Apple made the original announcement, the company expected to transition only low end computers such as the Mac mini to Intel’s processors by mid-2006 and higher end computers were to transition by mid-2007. A quick look at Apple.com and we already see that the company has successfully migrated the iMac, Mac mini, and the higher end MacBook Pro to Intel’s Core Duo processors. I believe Apple has introduced a new twist to selling its PC’s by offering a free public beta of Boot Camp for download. Boot Camp is a software program that lets Mac users with Intel hardware run the Microsoft Windows XP operating system. Mac users can switch between the two operating systems easily and Boot Camp includes all the necessary Windows drivers for the hardware to function at full speed. Apple has made two choices that have tied together three of the computer worlds biggest powerhouses, the first to use Intel hardware and the second to open the hybrid Apple-Intel PC’s to Microsoft Windows XP. The implications of Apple’s move could be huge.

Several years down the line, Apple could seriously pose a threat to companies like DELL, Dell, Inc. if the right strategy were executed. Think of your options as a mainstream PC purchaser for a moment. Apple can sell you a well designed, moderately priced computer, with the option to run two major consumer operating systems. A normal PC, purchased from the likes of Dell for example, is limited to the Windows operating system. There is currently no way for a Windows PC user to natively run any version of an Apple operating system. Apple has created a one way street that it can control and has decided to open the floodgates to the company’s industrial design catalogue to all PC users. I personally have desired a MacBook Pro and a Mac mini for a while, but the lack of ability to natively run my Windows applications has kept me from purchasing an Apple PC. Needless to say, during my next upgrade cycle, I will definitely consider an Apple product if an interesting design captures my attention.

In the short run, I believe Apple should be able to maintain current PC sales levels and its share of the PC market. Any increase in market share, albeit small or large, is likely to cause the stock price of both companies to rise. I believe analysts are ignoring the bigger picture and will not go out on a limb to recommend either company due to increased Intel powered Apple PC sales. This creates a valuable chance to purchase the stocks before others spot the opportunity.

I would recommend purchasing shares of Intel at today’s prices. I consider INTC undervalued and Intel is a clear winner in its relationship with Apple. I believe it’s a toss-up with AAPL shares. The performance of Apple shares is unclear due to the company’s reliance on the iPod. I would wait towards the end of the year incase iPod sales taper off and a selloff in AAPL ensues.

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6 Comments »

Comment by Matt

2006-04-19 13:25:57

I agree with your Intel statement. It’s a move that I’ve been considering for a few months now.

I’ve been watching your site now for a few months… It’s been a great learning tool for me since you seem to watch stocks that I am also interested in.

Keep up the good work…

Matt

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Comment by Matt

2006-04-19 13:27:34

Matt again…

You may want to remove my comments about SEO from the above comment… just leave in the part about my agreeing with your Intel comments…

Matt

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Comment by trinh pham

2006-04-19 14:16:50

Intel is a clear winner…but it’s a toss-up with Apple?

I would think it’s the other way around.

Everything you say (strength in industrial design, loyal fan base), Andy, points to Apple benefitting - I think the company will increase its share of PC market.

Intel, on the other hand, can lose market share if Dell interprets this as a slap in the face.

Dell is Intel’s most loyal customer - it doesn’t sell AMD products. What will stop them from incorporating AMD chips in its products as a result of Intel’s partnership with Apple?

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Comment by Leo

2006-04-19 21:55:39

I think trinh pham has an excellent point there. If Apple is able to gain more market share by introducing its capability to run both OS natively (which I believe it will), Dell might give AMD the green light as trinh had suggested. This will definitely hurt Intel.

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Comment by Andy

2006-04-20 13:47:21

Hi Trinh,

Intel still controls too much of the market for Dell to abandom them. Prior to Intel’s decision to go with Apple, Dell was already considering AMD. I believe Dell has no opinion of Intel working with Apple. For Apple it was all about the company’s own operating system. It was Apple’s choice to support Microsoft Windows. Dell may have to look at Apple as another Windows PC maker in the future.

Andy

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Comment by trinh pham

2006-04-20 21:19:02

I guess I’m just jealous because I missed the huge run-up in Apple’s share price.

I don’t think Dell will abandon Intel, at all, Andy.

But there is already a lot of pressure on Dell to offer AMD-equipped products - especially in the profitable server market - since AMD chips are faster and more power-efficient, from what I read.

In my opinion, Apple will most likely increase its share of the PC market - not hard when you control a small percentage.

When this happens, Dell will start selling AMD products. Why risk losing further market share to HP, Lenovo, etc.?

If I had to buy a stock, my pick would be Apple - they dominate their market (music players), and can only go up in their other industry (PCs). I can’t even name a competitor against the iPod.

Intel is losing market share to AMD, and I’m not sure their management is up to the task of turning the company around.

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