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Apple's 'historic' Intel split boosts firm's competitive edge, analysts say

Wall Street analysts praised Apple Inc.'s decision to shift production of chips for its Mac computers in house, noting that the move should further strengthen the company's ecosystem and competitive position.

At its annual Worldwide Developers Conference this week, Apple said it will replace Intel Corp.'s so-called x86 chips used in Mac laptops and desktop computers with its own processors. The move, according to Apple, will provide users with greater performance while conserving energy. Analysts note that the move gives Apple greater control over its end products and furthers the company's efforts to differentiate itself through vertical integration.

"Apple sets itself apart from technology hardware peers by developing everything from components to hardware, software and services, which allows Apple to more tightly integrate world-class technologies into products that deliver superior performance and a premium user experience," Morgan Stanley analyst Katy Huberty wrote in a note to clients.

She called the shift the most significant announcement from Apple's annual Worldwide Developers Conference.

The company is set to release the first Mac with its own custom-made silicon by the end of this year and expects the complete transition to take two years. Intel-powered Macs are still in the pipeline, however, meaning that Apple is not moving exclusively to its own processors just yet.

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Apple is set to release the first Mac with its own custom-made silicon by the end of this year and expects the complete transition to take two years.
Source: Apple Inc.

Wells Fargo analyst Aaron Rakers upped his price target on Apple stock to $400 from $385 while reiterating his "overweight" rating. He called Apple's decision to move away from Intel chips a "historic" one that indicates the company's "software depth/breadth and ecosystem expansion is as competitively strong as ever."

UBS analyst Timothy Arcuri is similarly bullish on Apple's transition to its own chips, calling the decision a "continuation of its strategy of vertical integration following years of convergence" in its phones and Macs that could drive "even more stickiness of the ecosystem." Arcuri increased his 12-month price target on the shares to $400 from $325 in a June 23 note.

Loup Ventures managing partner Gene Munster notes that Apple has a strong track record of boosting efficiency and delivering differentiated hardware features by using its own chips for iPhones and iPads, which should "instill confidence" in the company's latest move to Mac devices.

Munster expects Apple's in-house Mac processors to unlock a slew of new capabilities, such as privacy-centric features, on-device machine learning and improved power management, which will further distinguish the Mac from Windows-based computer offerings.

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Jeffrey Kvaal, a telecom analyst at Nomura's Instinet, was a bit less bullish on the announcement, calling the developers' conference "a bit vanilla," as the transition from Intel chips, while positive, had been expected.

"While Macs are no longer a major driver for Apple, we do believe bringing chips in house could improve Mac gross margins over time," Kvaal wrote in a June 23 note, maintaining a "neutral" rating on the company and a $250 target price.

Net sales from Macs totaled $5.35 billion in Apple's March 2020 quarter, representing about 9% of total net sales. By comparison, iPhone net sales totaled $28.96 billion, comprising almost 50% of total net sales.

Beyond the Mac announcement, Apple on June 22 unveiled its latest iOS 14 mobile operating system, along with updates to its Watch, TV, iPad and Mac operating systems.

The new operating system, set for release this fall, is designed to simplify everyday tasks and interactions. Notably, a revamped Siri will offer improved translation support features geared toward conversations and work offline.

Kvaal saw the conference as a "missed opportunity" for Apple, both in terms of the ongoing coronavirus pandemic and the upcoming launch of a next-generation 5G iPhone.

"Apple could have done more today to position for the new world; Facetime, for example, has not emerged as a go-to videoconferencing platform. Apple also did not tease reasons for users to upgrade to coming 5G phones" with virtual or augmented reality updates, Kvaal said.

Apple is widely expected to debut a 5G iPhone later this year. 5G is set to offer download speeds many times faster than the current 4G LTE wireless networks.