Bank of America says Apple could save $500 million a year making its own PC chips

Key Points
  • Bank of America Merrill Lynch estimates Apple can save $40 to $50 per computer if it uses its own chips.
  • The firm says the company can also improve its product development times if it ditches Intel's products.
An iMac Pro computer in an Apple store.
Zhang Peng | LightRocket | Getty Images

Apple's reported move to use its own chips instead of Intel's products for its PC business will boost its financials, according to Bank of America Merrill Lynch.

Bloomberg reported Monday that Apple plans to ditch Intel chips and opt for an in-house offering for its Mac computers beginning in 2020.

The "insourcing of chips could benefit Apple by not being dependent on Intel's processor cycles, by lowering the Mac costed bill-of-materials by ~$40-50, and by potentially streamlining and reducing R&D spend," analyst Wamsi Mohan wrote in a note to clients Monday.

Mohan said Apple can improve its product development times if it uses its own chips.

"The benefit to Apple would be two-fold: 1) aggregating development across iOS and MacOS can help lower the overall cost of R&D by potentially combining development teams and potentially reducing time to market for new products and Apps, and, 2) internally developing the processor can help save some cost vs. purchasing the processors from Intel."

The analyst estimates Apple may save $500 million a year if it uses its own chips for half of its Mac PCs. He predicts the company will gradually use its own offerings across its product lines, initially starting with low-end Mac laptops.

He reiterated his buy rating on Apple shares and $220 price target, representing 32 percent upside to Monday's close.