This iPhone Rumor Keeps Coming Up. Does It Have Legs?

If at first you don't succeed, try, try again. The Apple (NASDAQ: AAPL  ) rumor mill has now churned out this same rumor three times. Is it possible that perhaps it has some legs to it?

With talk of Apple preparing to launch a more affordable iPhone to target emerging markets, likely at a mid-range price point, one of the big question marks is how Apple will reduce its component costs. This device will inevitably see lower margins than the flagship, but Apple should still be able to generate more gross profit than rivals are typically able to.

One idea that's been floated has been that the iPhone maker is considering tapping Qualcomm (NASDAQ: QCOM  ) and its lineup of Snapdragon mobile applications processors in order to keep costs down. The latest outlet to entertain this idea is China Times, which is reporting that Apple is using a Snapdragon in its upcoming affordable iPhone.

This follows a report from DIGITIMES in January, which cited older generation Snapdragon models found in many flagship Androids of yesteryear. Just weeks after that report came another one from Detwiler Fenton saying that using a Snapdragon would result in cost savings.

That's three times in three months that investors have heard talk of a Snapdragon-powered iPhone. While I've also entertained this idea before in the past, I concluded that it simply didn't make sense considering how far Apple has come with its in-house chip engineering and design. I've shot down this speculation in the past, and I'll shoot it down again.

It's true that using a Snapdragon with an integrated baseband, such as the older MSM8960, could translate into cost savings by consolidating two chipsets into one. The newest Snapdragon 800 series could get the job done, but is likely too expensive since it's Qualcomm's latest and greatest, defeating the purpose of cost reduction.

The idea of using third-party chip vendors simply doesn't make strategic sense after Apple has come so far with its A-chips. Older A5 or A6 processors could easily be used at low cost, and even if that were slightly more expensive than a Snapdragon solution, it would be worth it since Apple gets to further build out its A-chip brand.

The last thing Apple wants is to be associated with competing devices, which would be inevitable if it used a Snapdragon since many Androids and all Microsoft Windows Phones use Qualcomm's chips. Doing so would be a clear strategic back step from its preferred trend of vertical integration.

Perhaps Apple did indeed perform some testing with Snapdragon iPhones, and this is where the rumors came from... but don't expect any to ever actually ship.

There's a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


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  • Report this Comment On March 08, 2013, at 10:55 PM, millsbob wrote:

    good points, Evan. these reports also completely ignore simple things like the cost of software changes and ongoing support costs for changing chip architecture.

    not to mention that Digitimes is really a humor rag, anyway, at least when it comes to Apple. they've never even come close with any prediction of which i'm aware.

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