Intel Vying for Apple’s Foundry Business

Intel (NASDAQ:INTC) is looking to establish itself in the foundry business, which is relatively new for the company. One recent development in this regard is that Intel is angling for Apple’s business (NASDAQ:AAPL), which is looking for alternatives to Samsung. Below we take a quick look at how this could play out. Intel competes with Advanced Micro Devices (NYSE:AMD) and Nvidia (NASDAQ:NVDA) in the microprocessor and graphics businesses.

Our price estimate for Intel stands at $28.68, a roughly 25% premium to market price.

Intel’s Opportunity, But a Word of Caution

Intel is competing with Samsung and TSMC to get a contract for manufacturing some of Apple’s chips. Intel will look to take advantage of deteriorating relationship between Apple and Samsung as Apple recently filed a lawsuit against Samsung accusing the company of violating its intellectual property regarding its smartphones and tablets. ^[1]

Though Intel supplies foundry to existing customers, Apple’s demand would help provide the scale for it to build out this business. Apple’s move away Samsung would take a fair amount of time, and for the time being would be a small portion for Intel, which we could include in the ‘other businesses’ segment that Intel reports. ^[2]

Interestingly Intel acknowledges that there is overcapacity in the foundry business and so this could make it difficult for it to reduce the ‘net losses from other products‘ where we would classify this business in the near-term. ^[3] Either Intel hopes to achieve scale and enough orders to make this business worthwhile or it sees strategic opportunity in thwarting business away from large suppliers like Samsung and TSMC.

See our complete analysis for Intel’s stock here.

1. Apple sues Samsung for ‘copying’ smartphones, tablets, CNET News, Apr 18 2011 [↩]
2. Intel vying for Apple foundry business, EE Times, 2 May [↩]
3. Intel: Foundry business is in oversupply trouble, EE Times, 18 Feb [↩]