Apple could ditch Samsung for Intel in chip production

Intel and Apple (NASDAQ:AAPL) have discussed the possibility of Apple moving its chip production efforts from Samsung Electronics--a direct rival to Apple in smartphones--to Intel, which Apple currently uses for its desktop and laptop computers. According to a detailed Reuters report that cited unnamed sources, Apple and Intel have discussed the switch during the past year but no agreement has been reached.

Sunit Rikhi, vice president and general manager of Intel custom foundry, told Reuters last week that the company is prepared to begin a new deal with a large, unidentified mobile customer. However, he declined to comment further, including whether that new customer was Apple. Apple also declined to discuss the situation, according to Reuters.

It comes as little surprise that Apple is seeking an alternative to Samsung. The two companies are fighting tooth and nail over the market for high-end smartphones--the rivalry is so heated that it has stretched into patent-infringement lawsuits that have so far resulted in Samsung potentially paying hundreds of millions of dollars to Apple in licensing fees. Apple, for its part, has made no secret of its desire to diversify its supplier base for chipsets and other components.

As Reuters points out, Intel is keen to expand its business through new "contract" manufacturing agreements. Though Intel has long staked out its position in desktop and laptop computers through sales of Intel-branded chips, the company is facing stiff competition in the mobile sector--which has forced it to consider building silicon for other companies, chips that wouldn't carry Intel's brand. For example, Intel recently inked a deal with Altera to manufacturer the company's chips in a contract relationship. An Intel deal with Apple would likely fall under this contract model.

But Intel faces a range of hurdles in mobile. The company currently does not support ARM Holdings' technology for mobile chips, a technology that is used by a wide range of companies including Apple and market leader Qualcomm (NASDAQ:QCOM). Further, Intel has only recently stated its intent to chase the market for tablets and smartphones, and so far has made only tentative progress.

ZTE, Google's (NASDAQ:GOOG) Motorola Mobility and others have agreed to use Intel chips, but companies including Qualcomm and MediaTek still dominate sales, especially for baseband chips. According to Strategy Analytics' latest report on the baseband market, Qualcomm, MediaTek, Intel, Broadcom and ST-Ericsson grabbed the top five spots in the market in terms of revenue share, in that order. The research firm said Qualcomm led the cellular baseband market with 52 percent revenue share in 2012, followed by MediaTek with 12.5 percent and Intel with 12.3 percent.

Also complicating matters is Intel's current search for a new CEO; in November Intel said CEO Paul Otellini will step down in May of this year. Intel's incoming CEO might have strong opinions on contract relationships or partnership with Apple.

But Apple is the world's second largest smartphone maker, behind Samsung, and winning Apple's iPad and iPhone business would represent a major victory for Intel in mobile.

For more:
- see this Reuters article
- see this The Verge article

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