What if Apple Breaks Up With AMD and Goes Back to NVIDIA?
Once upon a time, Advanced Micro Devices (NYS: AMD) gazed at Silicon Valley neighbor Apple (NAS: AAPL) and saw nothing but promise. Today, Cupertino looks like a barren wasteland from AMD's point of view.
Rumor has it that AMD no longer will sell graphics chips to power Apple's laptop systems. This comes only days after the semiconductor designer was reported to be getting this close to a bigger Apple deal rather than a smaller one. If all of these hearsay stories are true, maybe Tim Cook isn't any more forgiving of supplier errors than Steve Jobs was.
The "if" really matters, though. The original report on NVIDIA (NAS: NVDA) winning back its long-lost Apple account came from Semiaccurate, a tech blog with impressive connections but a hit-and-miss track record. Like The Wall Street Journal, Semiaccurate often depends on anonymous sources. It's just that the WSJ gets more no-name sources per story, and seemingly more reliable ones at that.
That being said, blogger Charlie Demerjian has some backup this time. Analyst firm Longbow Research poked at its own insider sources and came up with a very similar story. According to Longbow analyst JoAnne Feeney, AMD is losing Apple business worth about $45 million in 2011, while NVIDIA gains a similar-sized chunk of revenue in 2012. Feeney has been known to ride to AMD's rescue in previous wars of words, but not this time.
The two sources differ when you dig deeper. In Demerjian's version, Apple soured on AMD when the company failed to churn out enough next-generation laptop processors to replace Intel (NAS: INTC) in certain MacBook models. According to Feeney, there's nothing technical about the separation: "This is some sort of a customer-supplier tiff and Apple is known to be very difficult with its suppliers."
Apple should sell more laptops next year -- but main processors tend to come with acceptable built-in graphics solutions these days. Demerjian notes a precipitous drop for graphics card attach rates in ultrathin notebooks as a result. However, NVIDIA would rebut that claim by noting a record number of design wins in Intel's new Ivy Bridge processor that combines graphics.
The Apple opportunity would add less than 2% to NVIDIA's annual graphics sales and AMD's graphics division may lose about 3% of its revenue. But the Apple opportunity is actually bigger than Apple itself -- if you can make it there, you'll make it anywhere.
Just ask audio-chip specialist Cirrus Logic (NAS: CRUS) how its Apple sales have raised the company's profile and enabled fresh sales elsewhere. Or ask us OmniVision Technologies (NAS: OVTI) owners how it hurts to have your products removed from an Apple gadget, even if only partially. So it's a big deal even without large numbers.
NVIDIA is in the middle of morphing from a graphics specialist into a mobile processor wrangler. Getting a foot in Apple's door could be invaluable in that multiyear quest. Learn more about the trillion-dollar opportunity in front on NVIDIA in a brand-new special report. You'll see some familiar names passing by, but NVIDIA is the star of this masterpiece. Grab your copy right now; this is a rare combination of totally free and extremely valuable information.
At the time this article was published Fool contributor Anders Bylund holds a synthetic long position in OmniVision, but holds no other position in any of the companies mentioned. The Motley Fool owns shares of Cirrus Logic and Apple, and has bought calls on and shares of Intel. Motley Fool newsletter services have recommended buying shares of NVIDIA, Apple, and Intel. They have also recommended writing puts in NVIDIA as well as creating bull call spread positions in Apple and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.
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