On Friday The Wall Street Journal cited sources who said that Apple and Intel had reached a preliminary agreement for Intel to manufacture chips for the iPhone-maker.
Intel stock was up 16% in midday trading on the news; it has risen 246% this year.
Apple uses Taiwan Semiconductor Manufacturing to make its Apple Silicon chips that run all its devices. The company previously used Intel chips in Macs, but began phasing them out in 2020.
Taiwan Semi’s American depository share were down 1.5% in midday Friday trading.
Apple had long been Taiwan Semi’s best customer, but that position is being challenged by the artificial-intelligence investment boom, with AI chip makers like Nvidia and Broadcom taking up a lot of its leading-edge manufacturing capacity. In its recent second-quarter earnings call, Apple CEO Tim Cook said that the company had run into supply issues when iPhone and Mac demand outstripped Apple’s projections, and Taiwan Semi had no spare capacity. For Mac, this is bleeding into the current quarter—several Mac desktop models are back-ordered as a result—and it’s having a small impact on the company’s performance this year.
Apple has been trying to bring more production back to the U.S., in part by using Taiwan Semi’s Arizona factory to make chips that don’t require the most advanced manufacturing process. Apple will also assemble two low-volume products—servers and the Mac Mini—in the U.S.
It’s unclear exactly what this would mean for Intel should this deal come to fruition. Intel has been trying to bring in outside customers to its manufacturing, but its foundry segment still has little external sales, and it lost $10 billion last year. Anything that reduces that figure—or even turns it into a profit—would be a big benefit to the company.
Apple makes a lot of different chips, and there is a range of volumes. The company sells over 200 million iPhones a year, and the A-series chip that runs the smartphone is made on Taiwan Semi’s most advanced process in Taiwan. That is probably not changing any time soon. But Apple makes chips for lower-volume products like Mac, iPad, Watch, AirPods and AirTags. This could be where Intel might find opportunity in the medium term.
Intel still will have to prove to Apple that it can bring the same manufacturing quality and efficiency as Taiwan Semi. So an Apple contract would likely have knock-on effects, validating Intel’s manufacturing to other potential customers.
Write to Adam Levine at adam.levine@barrons.com