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The potential of a business partnership with Apple (NASDAQ:AAPL) is enough for any company and its watchers to get excited. However, Intel (NASDAQ:INTC), touted as one of the firms that could take the iPhone maker’s chip-making business away from Samsung, would be in big trouble if such a relationship were to materialize, Goldman Sachs analyst James Covello has said.
Covello, who reiterated a Sell rating on Intel, wrote in a note to clients that getting Apple’s business would drag Intel’s gross margin by about 400 basis points assuming total revenue of $8.9 billion in 2016, Barron’s said. According to Covello, Intel instead needed to rein in capacity in order to boost margins.
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It is being speculated that Apple is keen to transfer its mobile processor manufacturing away from old partner and new rival Samsung. Goldman analyst Michael Bang had earlier predicted that Samsung will see as much as 80 percent of its foundry business with the iPhone maker go away over the next five years. Intel, Qualcomm (NASDAQ:QCOM), and Taiwan Semiconductor Manufacturing (NYSE:TSM) are a few of the potential replacements of the Korean company.
Covello said he had received “a significant amount of investor interest regarding Intel becoming Apple’s foundry given Intel’s current excess capacity and Intel’s manufacturing ability.”
Intel chief executive Paul Otellini had earlier expressed enthusiasm in expanding the company’s foundry business, provided it received strategically appropriate customers and a well-paying deal.
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