How Will Apple’s Transition From Intel Chips Impact Its Margins?
Earlier this week, Apple (NASDAQ: AAPL) announced that it would begin shifting its Macs from Intel chips to its proprietary ARM-based processors, with a complete transition planned by 2022. The benefits are clear from a strategy standpoint - by designing its own processors, Apple will control the Mac experience from end-to-end, allowing it to optimize performance, design, and battery life. As Apple already uses similar chips on the iPhone, iPad, and Apple Watch, transitioning the Mac to ARM-based chips could make it easier for developers to build apps that work across its devices. There is likely to be an attractive financial incentive as well - we estimate that the shift could boost Apple’s gross margins by close to 1% as we outline in our analysis How Apple’s Transition To ARM Chips For Mac Can Impact Its Margins. Parts of the analysis are summarized below.
Competition in the processor market is fairly limited, considering the high barriers to entry both in terms of technology and capital investments, and this means that processors are high-margin components. For perspective, Intel’s net profit margins stand at close to 30%. The average Intel i5 processor (for Desktops) retails at between $150 to $200 per unit. On the other hand, the application processors used on iPhones cost as little as $30.  To be sure, the Mac-specific chips will be more expensive than their iPhone counterparts, but Apple is still likely to save a considerable amount by using its own chips.
There could be other component related savings well, considering that Apple’s chips are typically more energy efficient - more energy-efficient chip could help to cut battery size and reduce the need for cooling fans. If we assume that Apple saves about $110 per Mac on average by shifting to its own processors, and the company sells about 20 million Macs in 2022, it could trim about $2.2 billion in costs. This could improve 2020 gross margins from 39% to 39.70%, per our estimates. See our dashboard How Apple’s Transition To ARM Chips For Mac Impacts Its Margins for more detailed calculations.
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