Apple Inc. (NASDAQ:AAPL) is a company in need of advanced semiconductors to replace the supply from frenemy Samsung (NASDAQOTH: SSNLF). While TSMC works in the near term, the ultimate goal is to be in charge of your own destiny as semiconductor technology is the lifeblood of advancement of smart phones and tablets. While Apple Inc. (NASDAQ:AAPL) could certainly build their own fabs or try to buy a lesser foundry, such as Global Foundries, those options take too long and the war will long be over before they would come up to speed.
Apple buying Intel Corporation (NASDAQ:INTC) would give it access to the very leading edge of semiconductor manufacturing and the only company arguably substantially better than Samsung. Intel Corporation (NASDAQ:INTC) has been the leader in the Moore’s law race already working on the 1X node while others are struggling at the 2X node. International Business Machines Corp. (NYSE:IBM), who is the technology teammate of Samsung in a semiconductor development consortia, fell out of the race at the leading edge of technology several years ago. Intel has been the the clear leader and the driving force of the industry’s move from 2D to 3D technology with the pioneering FinFET topology. In one swoop Apple Inc. (NASDAQ:AAPL) would look a lot like the vertically integrated Samsung only with better products and more advanced technology.
Intel is in a downward spiral in need of a lifeline. While certainly not desperate, it is clear that PCs are no longer a growth industry and the Wintel dynamic Duo are in the retirement home. Intel Corporation (NASDAQ:INTC)’s attempts to be more relevant have not been any more successful than Microsoft’s. It would not take a huge buyout premium, in my view, to convince shareholders of Intel that “AppTel” has more upside than going it alone with no catalyst in sight.
A hook up with Apple Inc. (NASDAQ:AAPL) would instantly put to work Intel’s manufacturing clout on Apple’s processor IP. It would make Intel more “ARM like” without buying ARM Holdings plc (ADR) (NASDAQ:ARMH). Intel would get a huge benefit by this instant infusion of ARM-like technology. “AppTel” could easily decide to sell Apple/Intel ARM Holdings plc (ADR) (NASDAQ:ARMH) like designs, at a technology level of their choosing, to phone, PC and tablet makers and cut in on ARM Holdings plc (ADR) (NASDAQ:ARMH)s business and also compete with TSMC at the same time. Apple’s products could have a built in time to market advantage of superior performance that more advanced semiconductor geometries get you as compared to now where Samsung has it essentially at the same time Apple Inc. (NASDAQ:AAPL) has it.
While its true that Apple can continue to shop around its chip needs, but the reality is that TSMC is a peer to Samsung, every other chip maker is behind Samsung and only Intel gives Apple the competitive boost. In fact Apple Inc. (NASDAQ:AAPL) could get stuck in a similar position as it is currently in as TSMC will charge a premium for leading edge devices to pay for the R&D and capital outlays needed. The only saving grace is that TSMC doesn’t make smartphones yet, but it does supply parts to others who do.
Common wisdom would have it that Apple buying Intel would send Intel customers like Dell Inc. (NASDAQ:DELL) and HP running for the hills and into the arms of Advanced Micro Devices, Inc. (NYSE:AMD). The problem is that Advanced Micro Devices, Inc. (NYSE:AMD) is less relevant today and Global Foundries’ manufacturing technology lags too far behind so there would likely be little choice. The reality for Intel is that the PC market is going away anyway and teaming up with Apple does not change the PC market’s ultimate fate, only consumers decide that. Kind of like a terminally ill patient taking up smoking, it doesn’t matter in the long run. Production demands to supply Apple products would far outstrip any loss of business from former PC customers. The capacity that TSMC would have had to add to service Apple would instead be added to Intel’s stable of fabs thus increasing total value.
There is much improved upside for Intel shareholders as the potential today is hoping for a slower slide into oblivion (unless a miracle occurs). Apple Inc. (NASDAQ:AAPL)’s stock is not that expensive either having seen a long decline while searching for a catalyst not unlike Intel’s position. Apple shareholders could see a real use for all that cash and an acquisition that could “move the needle” and send shock waves through the tech space. Intel’s current valuation is relatively low as compared to the value it could add to Apple Inc. (NASDAQ:AAPL). While pundits can say that big mergers never work we can already see that Samsung has been quite successful as a combined consumer electronics and semiconductor manufacturing behemoth. Samsung’s success has not come from being at the bleeding edge of innovation, but being a very fast and smart follower. The way that the US and Silicon Valley stay in the game and ahead of the game is to get together a bigger and badder behemoth.
At the end of the day the combination of innovative products and world leading semiconductor technology would leave Samsung behind in second place whereas today it is a horse race for global domination of the smart phone/tablet space with the near-term momentum in Samsung’s favor. The value of a combined entity is clear and is mutually beneficial to both sets of shareholders. With such a move, Tim Cook would cement his legacy out from under the shadows of Steve Jobs and the US could slow the flow of technology to overseas competitors.
The article Would This Bold Move Solidify Apple’s Position? originally appeared on Fool.com and is written by robert maire.
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