Is Qualcomm, Inc. Twisting Apple Inc.s Arm?

By Markets Fool.com

It is well known that Apple doesn't always adopt the latest modem technology from Qualcomm . In fact, Apple's two most recent iPhones have actually featured Qualcomm modems that were about a generation behind the wireless chip giant's latest. As I wrote here, Apple might benefit from breaking with that tradition with the next generation iPhone as doubling LTE speeds could prove an interesting selling point.

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However, I think that with Qualcomm's recent chip announcement, Apple might have no choice but to adopt to the chip giant's latest stand-alone modems in order to not see its latest iPhone left in the dust by low-end and mid-range Android phones.

Explaining the situation
Qualcomm just announced that it would be bringing its leading-edge modem technology to its entire lineup of integrated Snapdragon products, from the low-end Snapdragon 400-series to the bleeding edge Snapdragon 800 parts. This means that even low-end and mid-range smartphones can feature cellular modems with 300 megabit per second download speeds and 100 megabit per second upload speeds.

The cellular modems inside of the iPhone 6/6 Plus today support 150 megabit per second download speeds and 50 megabit per second upload speeds. That's actually behind what some other flagships using Qualcomm's latest MDM9x35 modems offer, but the iPhone 6/6 Plus still offer relatively high-end cellular connectivity speeds.

However, with Qualcomm's refreshed Snapdragon 400 and 600 processors slated to show up in devices during the second half of this year, Apple might have no choice but to move to a more advanced modem for the iPhone 6s.

Is this what Qualcomm hopes to achieve?
By including such features on its low-end and mid-range chips, Qualcomm is clearly bolstering its competitive positioning relative to competitive chipmakers. However, by including such advanced functionality on even the low-end chips, Qualcomm might be trying to force Apple to buy up the product stack.

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Now, what's really interesting is that these low-end and mid-range chips have modem technology that's even more advanced than the MDM9x35 stand-alone modem. I had originally thought that Apple might move to this modem for the iPhone 6s, but this modem supports 300 megabits per second download speeds and only 50 megabits per second upload speeds.

That means if Apple were to simply use the direct successor to the MDM9x25 that it uses in the iPhone 6/6 Plus today, it would still potentially trail low-end and mid-range phones based on Qualcomm silicon.

So, I now think that there's a pretty strong chance that Apple will adopt the MDM9x45 modem that Qualcomm announced at its analyst day late last year. This modem features 450 megabit per second download speeds and 100 megabit per second upload speeds. This is quite a bit ahead of what Qualcomm has included in the aforementioned Snapdragon 400 and 600 chips.

If Apple does indeed adopt this chip, then this could mean an average selling price uplift for Qualcomm. While selling stand-alone modems to Apple is unlikely to bring in the revenue/profit dollars that selling an integrated system-on-chip to a less powerful smartphone vendor might, any revenue/margin improvement that Qualcomm can muster is a good thing for the company and for its shareholders. Conversely, this could mean an increase in cost structure for Apple's next generation iPhone.

The article Is Qualcomm, Inc. Twisting Apple Inc.s Arm? originally appeared on Fool.com.

Ashraf Eassa owns shares of Qualcomm. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Qualcomm. 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.