Will Intel Corporation Stay in the Apple Inc. iPhone in 2017?

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Image source: Apple.

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Microprocessor giant Intel (NASDAQ: INTC) has finally made it into the Apple (NASDAQ: AAPL) iPhone. The chipmaker is supplying a portion of the modems inside of the iDevice maker's iPhone 7 and iPhone 7 Plus phones. This isn't the sort of win that's going to move the financial needle for the chipmaker, but it does serve as a very real validation of the chipmaker's efforts to build capable cellular modems.

With Intel in the mix this year, one has to wonder whether Intel will be able to continue to win future iPhone designs. In this column, I try to answer that question.

Beyond XMM 7360

The Intel modem that Apple is likely using inside of the iPhone 7 is the XMM 7360. The modem supports up to 450 megabits-per-second download speeds and 100 megabits-per-second upload speeds.

Intel's next modem, a device known as the XMM 7480, still tops out at 450 megabits-per-second download speeds, but it sees an upgrade on the uplink to handle up to 150 megabits-per-second upload speeds.If Apple chooses to keep Intel as a modem supplier for the next-generation iPhone, it would almost certainly use the XMM 7480.

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Why using XMM 7480 could make sense

It's likely that Apple is using Qualcomm's (NASDAQ: QCOM) Snapdragon X12 modem for the non-Intel versions of the iPhone 7 and iPhone 7 Plus. That modem, interestingly enough, actually supports 600 megabits-per-second download speeds and 150 megabits-per-second upload speeds.

However, Apple only advertised the iPhone 7 and iPhone 7 Plus as being capable of 450 megabits per second download speeds. I suspect that Apple is sandbagging the capabilities of the Qualcomm modems in the versions of the iPhone that have Qualcomm modems in order to support its dual-sourcing strategy.

What I expect, then, is for Apple to continue using the Snapdragon X12 modem inside of the non-Intel versions of its post-iPhone 7 smartphones, but this time, enable them to reach their full upload-speed potential, because the XMM 7480 will finally be able to match it.

Intel has a foothold, but it needs to improve its products

Frankly, it's quite interesting that Apple was willing to sacrifice the peak download speeds that it was able to advertise for the sake of bringing Intel on as a modem supplier.In the near term, I would expect it to be a mild inconvenience for Apple, as competing smartphone vendors will be able to advertise faster download and upload speeds relative to the new iPhones.

Longer term, it looks to me that Apple is making a long-term bet on Intel in a bid to diversify its modem suppliers. By making the required sacrifices to bring Intel onboard for the iPhone 7, Apple makes it worth Intel's while to continue to invest aggressively in future modem technology.

With that in mind, Intel is going to need to step it up in terms of features and performance. I don't think Apple will want to artificially restrict the cellular capabilities of its phones in order to accommodate Intel in perpetuity. If Intel doesn't achieve feature/technology parity with Qualcomm over the next, say, three to four product generations, it wouldn't be farfetched to think that Intel would no longer be inside of the iPhone.

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Ashraf Eassa owns shares of Intel and Qualcomm. The Motley Fool owns shares of and recommends Apple and Qualcomm. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool recommends 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.