This Rumored Partnership Between Intel and Apple Won't Happen

By Markets Fool.com

There have been rumors going around -- more like speculation -- that at some point Apple (NASDAQ: AAPL) will tap Intel (NASDAQ: INTC) to manufacture its A-series applications processors for the iPhone. Not only that, but that same line of speculation also calls for Apple to integrate Intel's modem technology into its processors as part of the contract chip manufacturing negotiation.

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I have written about why I don't see this as likely at any point in the near to medium term -- mainly because such a project would be quite risky with significant potential points of failure that are outside Apple's control. Thanks to some new data, the argument against this becomes substantially stronger.

Image source: Intel.

Intel's modems perform poorly

It would be risky enough for Apple to both migrate to Intel for chip manufacturing services and to incorporate Intel's modem technology in an Apple chip design even if Intel's modems were best-in-class performers. The argument totally falls apart if Intel's modems simply aren't that good.

As luck would have it, Cellular Insights recently compared the cellular performances of the iPhone 7 with an Intel modem and the iPhone 7 with a Qualcomm (NASDAQ: QCOM) modem, finding that the Qualcomm version delivers vastly superior cellular performance to the Intel modem.

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Or, put a little more bluntly, the Intel modem isn't up to snuff.

It seems that Apple didn't choose to use the Intel modem for its performance or quality -- otherwise, Intel clearly wouldn't have won the design -- but rather as a means of making sure that it has multiple suppliers for modems going forward. It appears unlikely that Apple would risk embedding a modem from a second-rate modem supplier into its industry-leading A-series processors.

Indeed, if Apple were interested in integrating a modem into its smartphone processors in the near term, a licensing deal with Qualcomm for its modem technology would be the more logical choice, though it's not clear how amenable Qualcomm would be to that, given that its modem technology is its crown jewel.

Over the long term, Apple may need to build its own

Today, Apple uses standalone modems from both Qualcomm and Intel, making it the only major smartphone vendor to not use modems integrated into the applications processor itself.

Apple could conceivably keep on simply using standalone modems from multiple vendors, or it could build an in-house modem for eventual integration into the A-series processors.

I suspect that for the next several generations at least, Apple will continue to use standalone modems. Building a competent, let alone leadership, modem is no easy feat -- especially if the technology is being built largely from scratch, as an Apple modem probably would be.

Over the long term, though, I wouldn't be surprised if Apple built its own, if only to eliminate its dependence on third-party suppliers for such a critical component. Such an effort would be expensive, and likely to produce many failed modems along the way. But if Apple is serious about it, I suspect it'll eventually be able to build its own competent cellular modem.

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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.