When Apple (NASDAQ: AAPL) had to decide on the source for the cellular modems that would go in the iPhone 7 and iPhone 7 Plus smartphones it unveiled last year, it picked two companies: Qualcomm (NASDAQ: QCOM) and Intel (NASDAQ: INTC).
Continue Reading Below
Sourcing components from multiple suppliers is smart for a couple of reasons. First, it reduces risk, particularly as supply problems with one vendor won't wreak nearly as much havoc as they would if they were the only vendor.
Second, by actively supporting more than one supplier, Apple shifts bargaining power away from a potential sole-source and toward itself, potentially leading to lower component costs and higher profit margins for the buyer.
It's widely accepted that Qualcomm is the leader in cellular technology; Intel, though it's improving, is still very much the challenger.
The choice to use both stirred up some mild controversy, as third-party testing appeared to show that iPhone models with Qualcomm modems performed better than their Intel-powered counterparts.
The good news for those individuals who wanted to avoid the Intel-powered models was that they could simply buy unlocked, SIM-free iPhones and be guaranteed Qualcomm modems.
Continue Reading Below
That trick is going to work this year, too -- but it won't for the 2018 iPhones. Here's why.
All about CDMA
One feature that Qualcomm modems support that current Intel modems don't is CDMA, which is a bandwidth-sharing method used by some wireless carriers. This means that iPhones with Intel modems simply won't work on these networks.
If Apple wants to sell phones that'll work on any carrier -- and the so-called "SIM-free" models that Apple sells do just that -- it needs to endow them with Qualcomm modems.
Intel's XMM 7480 modem, which is very likely to power the Intel-based iPhone models this year, doesn't support CDMA either, so if you want to be guaranteed an iPhone with a Qualcomm modem this year, go buy a SIM-free iPhone.
The follow-on to the XMM 7480, however, known as the XMM 7560, does support CDMA.
In theory, then, Apple would be able to use either Intel or Qualcomm modems interchangeably across its 2018 iPhone lineup since the modems will be at feature parity.
Why this could be controversial
However, even if Intel's XMM 7560 is equivalent on paper to its Qualcomm counterpart, there's still the possibility that in the real world, Qualcomm-equipped iPhones will perform better.
Now, to be perfectly clear, only a minuscule subset of the many millions of individuals who buy these new iPhones will know or care about any differences in cellular performance between them.
But, if there are significant differences, I do expect them to be sniffed out and publicized by third parties, just as they were during the iPhone 7 generation.
Such revelations will surely make for some interesting headlines, but I ultimately wouldn't expect any meaningful impact to 2018 iPhone sales. Smartphone buyers, at the end of the day, are ultimately picking their devices based on more noticeable features such as camera capabilities, form factor, and aesthetics.
If the Intel-equipped iPhones are "close enough" in cellular capabilities to their Qualcomm-equipped counterparts, Apple need not worry about changing its strategy of dual-sourcing cellular modems.
10 stocks we like better than Apple
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Apple wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of September 5, 2017
Ashraf Eassa owns shares of Intel and Qualcomm. The Motley Fool owns shares of and recommends Apple. The Motley Fool owns shares of Qualcomm. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.