Why Would Apple Switch Chip Suppliers?

Apple Inc. (NASDAQ: AAPL) is rumored to select Intel Corporation (NASDAQ: INTC) as its supplier of LTE chips in 2016.

Analysts agree that this would be a monumental gain for Intel and a massive loss for QUALCOMM, Inc. (NASDAQ: QCOM).

"My suspicion is the reason Qualcomm's buyback didn't have more teeth is because of this rumor," Sean Udall, CIO of Quantum Trading Strategies and author of the TechStrat Report, told Benzinga. "It'd be a huge win for Intel and a big loss for Qualcomm."

Brett Golden, president and co-founder of The Chart Lab, said that this move would be a "a vote of confidence" in Intel to take business away from Qualcomm. "I think that helps," Golden told Benzinga. "But I have no idea if it was based on pricing, the best product, or how they won that business."

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Problems Ahead

Cody Willard, chairman of Scutify (a financial social network), told Benzinga that Qualcomm is wholly dependent on its mobile business. "Intel is just now trying to finally crack in and get any kind of meaningful traction in the mobile world," said Willard.

"It would be devastating for Qualcomm shareholders. It would be huge for Intel not only because it would give them an actual in -- to Apple and the iPhone -- but it would validate Intel's chipsets and Intel would quickly replace ARM architecture as the de facto standard going forward."

Willard said this would be a "monumental game-shifting event for a lot of semiconductor companies" if Intel were to win the business. "I'll believe it when I see it though," he added.

Why Would Apple Switch?

After working with Qualcomm for so many years, investors might expect Apple to stay put. Udall outlined three reasons why Apple might switch to Intel, starting with the nanometer form factor. "They keep shrinking the size all the time," he said.

Udall also noted that, unlike Qualcomm, Intel manufactures its own chips. "Intel can build as many chips as they need and they self-source," he explained. Meanwhile, Qualcomm "outsources everything."

Finally, Udall said that Intel is not anywhere close to manufacturing capacity. That could also make the company an attractive supplier. "As far as rumors go, that one's pretty darn believable," Udall concluded.

'Intel Will Double'

Finally, Willard shared his expectations for what will happen if the rumor turns out to be true. "Intel will double [and] Qualcomm will drop by 30 to 50 percent if Intel takes the iPhone business," he said.

Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.