Intel Corporation Thinks It Can Catch Up to Qualcomm, Inc. in Modems

By Ashraf Eassa Markets Fool.com

The launch of the Apple (NASDAQ: AAPL) iPhone 7-series smartphones market what was, arguably, the most significant design win that microprocessor giant Intel (NASDAQ: INTC) had ever scored in smartphones.

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Image source: Intel.

A large portion of Apple's iPhone 7 and iPhone 7 Plus smartphones include Intel's XMM 7360 cellular modem, and the chipmaker seems to be working hard to ensure that it builds compelling enough products to continue to win future iPhone business.

At a recent investor conference, the head of Intel's Client Computing Group, Navin Shenoy, spent some time talking about the company's investments in and strategies related to cellular modems. In this column, I'd like to go over the salient points of that discussion.

A "strategic investment"

Shenoy began by saying that cellular modems represent a "strategic investment" for the chipmaker.

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"We do think that as the world gets more smart and connected, you're going to need modems -- it's going to be a core intellectual property, much like graphics was 10 years, 15 years ago," for Intel, he explained.

Autonomous vehicles stand to benefit from cellular connectivity. Image source: Intel.

Shenoy went on to say that modems are going to be important in many of the key areas that Intel wants to participate in, including personal computers, cars, smartphones, and "other [Internet of things] applications."

One modem a year keeps Apple interested

The executive reiterated a commitment that other Intel executives have made in the past -- Intel intends to release new cellular modems each year. He also said that the company's next generation cellular modem, branded the XMM 7480, is scheduled to go into "high-volume manufacturing" during 2017. The 7360 entered mass production in 2016.

Image source: Apple.

Considering that Apple is pretty much the only major buyer of Intel's cellular modems, it's clear that Intel is aiming to deliver new modems on this schedule so that its chips are ready to go for when Apple launches new smartphones each fall.

Modem manufacturing strategy

It's well known that all the modems that Intel has released thus far haven't been manufactured by Intel -- they're designed by Intel and manufactured by third parties.

Shenoy declined to comment on where Intel will be manufacturing the next-generation XMM 7480 -- or, as he was quick to point out, future modems -- but made it clear that Intel's manufacturing choices would be made on a "pragmatic basis" and that the company is evaluating both in-house manufacturing as well as external options for future modems.

Catching up with the market leader

Qualcomm (NASDAQ: QCOM) is known for being the leading manufacturer of cellular modems, but Shenoy did take the opportunity to brag a little bit about the company's recently announced 5G modem, referring to it as the "world's first global 5G modem."

Image source: Qualcomm.

"All I can tell you is the investment in the modem portfolio -- and the commitment to invest in the modem portfolio -- is very strong and we think that over time we can be in an absolute equivalent position to our competitors," Shenoy asserted.

The executive conceded that the company is "coming from a position of being behind and so it's going to take us a few generations to catch up."

Catching up with the market leaders, particularly Qualcomm, is going to be a tall order, but if the company can pull it off, I'm sure that Apple -- which likes to have multiple sources for critical components -- will be extremely happy.

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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. The Motley Fool has a disclosure policy.