Why Do Apple Inc. and Qualcomm Inc. Reportedly Have an Uneasy Relationship?

In a recent article published in Venture Beat, the author claims that, per his sources, Apple and one of its key iPhone suppliers, Qualcomm , have an "uneasy relationship." In this article, I'd like to offer a potential explanation for this reportedly rocky relationship.

Qualcomm's chip business likely benefits from Apple share lossAlthough Qualcomm supplies chips to Apple, it doesn't sell nearly as much content to the latter as it provides to many other high-end smartphone makers.

In its teardown report of the iPhone 6s, iFixit reported finding the following Qualcomm chips:

MDM9635 category 6 LTE modem
PMD9635 power management chip
WTR3925 RF transceiver
QFE1100 envelope tracking chip

In contrast, iFixit saw the following Qualcomm chips in its teardown of the LG G4:

Snapdragon 808 chip (this includes both a Qualcomm-designed applications processor as well as a category 9 LTE baseband in a single piece of silicon)
WCD9330 audio codec
PM8994 power management chip
WTR3925 RF transceiver

On an apples-to-apples basis, Qualcomm seems to have materially higher dollar content in the LG flagship than it does in the Apple flagship.

Additionally, keep in mind that Apple is a very large customer that is likely able to command meaningful "volume discounts" given the kinds of volumes that it brings to the table with iPhone. In contrast, the market for Android flagships has several vendors that all ship phones in much smaller quantities than Apple does, which may mean they don't quite get the aggressive pricing than Apple likely gets.

In light of this analysis, I'm fairly confident Qualcomm would much prefer to see the various Android flagship phone vendors gain share on Apple than the reverse (which is the trend that seems to be going on in the industry).

Apple probably isn't too thrilled with what Qualcomm does, eitherQualcomm does a lot of work in trying to capture as much of the smartphone platform bill of materials as it can. In addition to modems, applications processors, and audio codecs, Qualcomm has been touting technologies such as "Snapdragon Sense ID," which is essentially a competitor to Apple's Touch ID.

By providing these technologies to its chip customers, Qualcomm allows Apple's competitors to more easily and quickly implement advanced features in their phones. Apple's modem revenue, to some extent, funds the development of Qualcomm's future smartphone chips and related platform features -- something that may not sit well with the iDevice maker.

Apple likely wants to lessen its dependence on QualcommI suspect that Apple is eager to lessen its dependence on Qualcomm for such a critical component in its iPhone. The reports that Apple is aiming to source modems from Intel likely have some merit to them, and I wouldn't be surprised to see Intel added to Apple's iPhone supply chain down the line as long as Intel can provide high-quality alternatives to Qualcomm's modems.

Longer term, I suspect Apple will eventually build its own cellular modems. It could be many years before Apple is ready with cellular modems good enough to substantially cut out third-party suppliers. But given how successful the company has been with its A-series chips, I have little doubt that Apple could eventually build up one of the world's best modem/RF teams -- a prospect that might just keep Qualcomm execs up at night.

The article Why Do Apple Inc. and Qualcomm Inc. Reportedly Have an Uneasy Relationship? originally appeared on Fool.com.

Ashraf Eassa owns shares of Intel and Qualcomm. The Motley Fool owns shares of and recommends Apple and Qualcomm. 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.