A fresh report from DigiTimes says that Apple (NASDAQ: AAPL) currently sources 30% of the cellular modems used in the iPhone 7-series devices from Intel (NASDAQ: INTC), with the remaining 70% coming from longtime iPhone supplier, Qualcomm (NASDAQ: QCOM).
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Losing a portion of Apple's iPhone cellular modem orders certainly impacted Qualcomm's financial performance, as well as, arguably, the perception of the value of Qualcomm's technology. Previously, only Qualcomm built stand-alone models that could meet Apple's iPhone needs, but with Apple's use of Intel modems in its flagship smartphones, that perceived value may have lessened among investors.
Image source: Apple.
Per DigiTimes, because of the increasingly bitter litigation between Qualcomm and Apple, Intel is expected to see its iPhone modem allocation as a percentage of Apple's total flagship iPhone shipments increase over time. "Apple's outsourcing proportion to Intel for the next-generation iPhone baseband chips has risen to about 50% for orders running through the end of 2017," DigiTimes says.
It will get worse for Qualcomm and better for Intel if DigiTimes' reporting is accurate. The report says that Apple is "likely to shift even more baseband chip orders away from Qualcomm with Intel to supply over 70% of the baseband products for iPhones by 2018."
Good thing Intel's XMM 7560 supports CDMA
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One of the key factors that will enable Intel to potentially capture the bulk of Apple's iPhone modem orders is that its upcoming cellular modem, known as the XMM 7560, is expected to support the CDMA standard, a feature that's lacking in the company's current XMM 7360 (used in the iPhone 7-series) and the upcoming XMM 7480 (likely to be used in this year's iPhone models). With CDMA support, iPhones incorporating Intel's modems will be usable on CDMA-capable networks like Verizonand Sprint, as well as on the GSM-capable networks that the current Intel-based iPhone models support.
In other words, iPhones with Qualcomm and Intel models would be, for all intents and purposes, interchangeable. However, Apple doesn't gain this flexibility -- and Intel doesn't enjoy this potential opportunity -- until the product cycle after the coming iPhone 7s/8 cycle.
What this could mean for all parties involved
Obviously, the loss of additional share at Apple would sting Qualcomm's chip business. Now, it wasn't the end of the world for said business when Qualcomm lost that initial part of Apple's modem orders to Intel, and it certainly wouldn't be the end of the world for Qualcomm to lose additional share here. Remember that Qualcomm sells mobile applications processors, often with additional support chips, to a wide range of customers, and Apple is just one customer -- albeit a reasonably large one.
For Intel, the impact of additional share gains at Apple would be a boost to its relatively small wireless chip business, which is just one small part of the company's overall Client Computing Group, or CCG, business. The impact to said wireless business would be large, and it would give Intel additional incentive to continue to develop cellular modem technologies, but the impact to the company's overall revenue and profits would be quite small -- as was the impact of the initial Apple modem revenues to Intel's business.
Finally, Apple would further lessen its dependence on Qualcomm, with whom it's in a bitter legal battle.
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Ashraf Eassa owns shares of Intel and Qualcomm. The Motley Fool owns shares of and recommends Apple, Qualcomm, and Verizon Communications. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.