1 More Reason Apple Inc. Shouldnt Ditch Intel Corporation in the MacBook

By Ashraf EassaFool.com

There has been a lot of discussion about Apple potentially ditching Intel in some variants of the MacBook (in particular, the Air) over the long term. While the traditional arguments/counterarguments center on performance and price, I think investors are missing one key element to this whole situation that is worth discussing.

Intel's product segmentation and upsellConsider the following screen-capture from Apple's website. In particular, take notice of the processor options available for purchase with this 13-inch MacBook Air:

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Source: Apple

Notice that the base model starts with an Intel Core i5, but that for an additional $150, a customer can move up to a Core i7, which brings about a 20% performance boost. Now, if you look at Intel's "official" pricing on these processor models (the i5-4260U and i7-4650U, respectively, according to AnandTech), the former is priced at $315 and the latter at $426 (in quantities of 1,000).

This price delta suggests that Apple may be pocketing "just" an additional $39 in profit from the higher-end parts. However, Apple (as do most PC vendors) buys in such large volumes that these "list prices" are quite far removed from reality. Additionally, while I'm sure that Apple pays Intel a premium for better chips, I am not convinced that it's paying as much extra for the i7 parts as the price delta to the customer would suggest.

What does this mean for Apple and Intel?The point that I'm trying to make is that Apple probably makes quite a nice chunk of incremental change when a customer chooses an i7 over an i5. Further, I would argue that customers are willing to buy "up" the stack precisely because Intel has done such a good job of segmenting its products in the minds of consumers.

If Apple were to ditch Intel (and the Intel Core brand) in its MacBook product line, it would need to produce multiple flavors of its home-grown A-series processors. It would also need to market the different performance variants in a way such that performance-conscious customers would be willing to pay extra for the higher-performing ones.

Apple can do it, but it's not that easyThe purpose of this article isn't to suggest that Apple couldn't segment its internal chip designs; it could certainly do so. Apple's brand is quite strong and, according to Interbrand, even more valuable than Intel's. That said, Apple would probably need to convince "new to Mac" customers that they're not giving up performance/capability in choosing an A-series processor powered laptop rather than one with "Intel Inside" running Windows.

So, what does Apple gain from moving away from Intel in the MacBook?At this point, it's really hard to see what Apple would gain from moving away from Intel. Intel's laptop/desktop processors are best-in-class, its brand and product segmentation are valuable to all PC vendors (including Apple), and it continues to invest considerably in next generation chip designs targeted at notebook and desktop PCs.

I continue to believe that as long as Intel's chip R&D pipeline remains strong, Apple will continue to use Intel processors in its Mac products.

The article 1 More Reason Apple Inc. Shouldnt Ditch Intel Corporation in the MacBook originally appeared on Fool.com.

Ashraf Eassa owns shares of Intel. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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