Analysts Say Reaction to Apple Ditching Intel Is Overblown

Intel Corp.’s (INTC) stock came under pressure in the first week of April trading after Bloomberg reported Apple (AAPL) could go it alone when it comes to the chips that power its Mac computers.

While investors viewed that as a big blow to the Santa Clara, California chipmaker, sending its stock down more than 6%, Wall Street investment firm Stifel isn’t worried, reiterating its buy rating on the stock and urging investors to use any weakness as an opportunity to build a position in the chip maker.

"The market is overreacting to Apple's announcement for using an internally developed CPU for its Mac systems as early as 2020," Stifel analyst Kevin Cassidy wrote in a note to clients which was covered by CNBC.  "According to IDC, Apple had 7.3% traditional PC unit market share in 4Q17." Cassidy pointed out that Apple has been losing market share in the traditional PC market for some time now. According to IDC, its share stood at 7.3% in the fourth quarter,  which is down from 7.9% in the third quarter of 2017. “The market share losses may be behind Apple’s decision as an effort to differentiate its platforms from the dominant players. HP, Dell and Lenovo. Similar to its iPhone strategy, optimizing its operating system to an internal developed CPU may provide performance and energy efficiency improvements,” wrote the analyst, according to Barron’s. (See more: 3 Stocks That Will Win the High-Speed Data Wars.)

Bloomberg, citing people familiar with Apple’s plans, reported the Cuppertino, California iPhone maker could use its own in-house chips for its Mac computers starting in 2020. The chips, code-named Kalamata are still in the early stages of being developed but are part of a broader push to make all of Apple’s devices work together. Bloomberg noted the project will likely involve stages of transition to the new chips. Intel gets about 5% of its annual revenue from Apple, noted Bloomberg, citing its supply chain analysis. (See more: Apple Gearing Up to Launch Cheaper MacBook Air: KGI)

According to Stifel’s Cassidy, who reiterated his $53 price target for Intel, Apple accounted for around 4% of Intel revenue in 2017 and for under 1% of its profits for the year. What’s more, the analyst doesn’t think Apple’s move will spark a trend in which other PC makers bring their chip development internally.

Morgan Stanley's top-rated analyst Joseph Moore said he doesn't see Intel's roughly 4 percent exposure to Apple's Mac devices being fully at risk in an "investable time frame," reported Reuters. Moore maintained his "equal weight" rating on the stock. According to Reuters, Summit Insights' Kinngai Chan said it will be difficult for Apple to completely replace Intel by 2020.

Intel closed Monday’s regular trading session down 6.07% or $3.16 to $48.92. Shares dropped as much as 9% intraday but were able to recoup some of the losses to finish the regular trading session 6% lower. In pre-market action, Intel’s stock was edging higher, up $0.28 or 0.57% to $49.20. At $53 a share, Stifel’s Cassidy thinks the stock can appreciate an additional roughly 10%.

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