News earlier last week that Apple (NASDAQ: AAPL) would dump Intel (NASDAQ: INTC) as a supplier need not be taken seriously. Sure, the business loss for Intel would demoralize the company somewhat but the absolute value of it is minimum. With the stock now yielding a dividend of 2.38%, investors may still want to consider holding INTC stock as a core position. Why, in light of Apple potentially leaving it?
AMD won Apple’s business in the last iteration of computer product refreshes but this neither helped nor hurt the share price by much. And at a P/E of 16 times for Intel, plus the realization that Intel is branching out away from the PC market, investing in Intel makes plenty of sense. This year, Intel is expected to grow EPS by around 47%. If its Mobileye buyout is on schedule and automobile manufacturers continue to add more technology content in cars, Intel’s business looks healthier than ever.
Risks
A drop in memory, storage, and chip prices is a clear negative for Intel’s profit margin. Slower demand and competition from AMD would hurt its PC business. Yet Intel has room to maintain its profit margin. As its raw costs fall, Intel may lower prices to drive demand higher.
As for Apple…
BofA thinks Apple would save $500 million by making chips in-house. That savings is just a number. A drop in quality for Apple products is possible when moving to an entirely new chip. That is hardly worth the savings. Plus, Apple is better off finding efficiencies and growth with its subscriptions business like Apple Music or Cloud than to tinker with its hardware supply chain.
Tech Insider
