No. 1 chipmaker Intel (INTC) could supply more than half of the Apple (AAPL) iPhone 7 modems, on its way to possibly entirely ousting incumbent Qualcomm (QCOM) from the Apple supply chain, Cowen analyst Timothy Arcuri said Monday.
Intel shares rose 1.1% to 34.38 on the stock market today. They have recovered 12% since June 27, when Intel stock hit a sell zone. On Wednesday, the shares moved back into a buy zone first reached June 23, when Intel stock broke out of a cup-with-handle base at a 32.79 buy point.
Arcuri boosted his price target Monday on Intel stock to 36 from 32 and kept his market perform rating. He expects Intel's Apple business to add 17 cents earnings per share ex items on $1.5 billion in incremental revenue over 2016 and 2017.
Qualcomm stock fell 0.1% to 54.12. It has a potential buy point of 56.37, out of a flat base.
Earlier, Arcuri had seen Intel seizing just 25% of the iPhone 7 modem business. On Friday, RBC analyst Amit Daryanani speculated Intel would supply a third. Now, Arcuri expects Intel to take more than half of Apple's iPhone 7 modem business.
Cost is a factor. Intel's four-chip modem product costs about $7.50 to make, meaning Intel can sell it for $15 and still garner 50%-55% gross profit margins, Arcuri says. Taiwan Semiconductor Manufacturing (TSM) looks likely to make the bulk of these phones. Qualcomm's modem product for iPhones runs about $17 to buy, Arcuri says.
Apple is diversifying its supply chain, and that doesn't look good for Qualcomm in the long term, Arcuri wrote in a research report.
"Intel could, over time, allow Apple to integrate Intel's modem technology together with Apple's application processor and eventually use Intel's foundry to make the chip and cut Qualcomm out entirely," he wrote.
Getting back into the iPhone allows Intel another chance to justify its long-suffering mobile unit. Intel is largely known as the prime PC supplier and hasn't had any chips inside an iPhone since the 3G iteration.
"The psychological effect (of getting into Apple) for Intel is event greater as it opens up an entirely new non-(PC) narrative," Arcuri wrote.
Apple stock rose 0.3% to 96.98. Taiwan Semiconductor, which reported June sales rose 36% in local currency, advanced 1.8%.
