Apple (NASDAQ:AAPL) critics have historically loved to point out that Apple is sometimes slow at adopting the latest cellular technologies. For example, when the rest of the world had begun moving to LTE-capable smartphones back in 2011, Apple launched its iPhone 4s without LTE support – limiting the throughput that its phones could deliver via a cellular network. In 2013, while Samsung launched its first LTE-Advanced device, Apple recycled the same Qualcomm (NASDAQ:QCOM) MDM9615 LTE baseband found in the iPhone 5 in the 5s.
Apple's lack of cellular leadership
While many companies focus on the speeds and feeds of the apps processor, investors sometimes ignore the sheer importance of the cellular and connectivity capabilities of the phone. After all, in order to more rapidly access websites, stream HD content, and download applications faster (and in a more efficient way), there is a very clear need to advance both the Wi-Fi and cellular capabilities of the phone.
Interestingly enough, Apple didn't really push the boundaries with its latest iPhone 5s at all. On the cellular side, Apple still only supports category 3 LTE while the latest-and-greatest devices from Samsung come packed with the Qualcomm Snapdragon 800, which features Qualcomm's MDM9x25 modem block with 150Mbps transfer speeds enabled in part by a feature known as "carrier aggregation."
Category 6 LTE-Advanced is the next "big" thing
The iPhone 6 and/or a potential "larger" iPhone (rumored to be called the iPhone Air) could really step it up support for the latest LTE-Advanced standard. Further, not only can Apple just "catch up" with 150Mbps LTE, but it can really take the charge and embrace the most sophisticated category 6 LTE-Advanced standard (300Mbps – twice the speed of today's LTE-Advanced) that should gain steam during the back half of 2014.
Why Apple can take advantage
There is going to be a pretty unique change in the competitive dynamics in the cellular chip space beginning this year. Since 2011, Apple has had precisely zero choice as to whom it would purchase cellular basebands from – it was either Qualcomm or bust. Intel (NASDAQ:INTC) enters the scene with its own XMM 7260 LTE-Advanced modem and it should be able to service most of the world (i.e. everything but CDMA networks like Verizon and Sprint).
This means that Apple will finally be able to play suppliers against each other in order to obtain better pricing on components. In particular, with Intel so desperate to gain any kind of traction in the cellular world and with Qualcomm completely cognizant of just how painful it'd be for its stock price to actually lose this socket, margins for this socket are set to plummet – a big benefit for Apple.
Foolish bottom line
When a particular component suffers from monopoly pricing, companies like Apple that live and die by their gross margin structures often hold back transitioning to newer and more expensive technologies if they can help it. However, with competition heating up in the land of cellular baseband chips, Apple will likely be able to move to next generation standards more quickly and preserve its margin structure. No matter how this goes, Apple will be a winner – even if next generation iPhones sport all-Qualcomm cellular chips.
Ashraf Eassa owns shares of Intel. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple, Intel, and Qualcomm. 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.