Here's Why Apple's iPhone 6 Probably Won't Use Qualcomm's Latest Modem

Here's why Apple is unlikely to use Qualcomm's latest and greatest in its upcoming iPhone 6.

May 18, 2014 at 2:30PM

Ever since Apple (NASDAQ:AAPL) kicked Infineon Wireless (now owned by Intel (NASDAQ:INTC)) to the curb, Qualcomm (NASDAQ:QCOM) has been Apple's sole source for cellular baseband solutions. Interestingly enough, despite Apple's position as the world's leading vendor of premium smartphones, it has typically stayed a generation behind the leading edge on the modem side of things. With Apple's upcoming iPhone 6, the company is likely to continue that trend for a number of good reasons.

Cost is likely to be the biggest factor
While many of Apple's competitors quickly race to adopt next-generation wireless standards (for example, most hero phones today support category 4 LTE-Advanced while the iPhone 5s supports category 3 LTE), doing so doesn't come without cost implications. The latest generation of any given part is usually more expensive than the prior generation part as the added features drives a premium, so Apple tends to want to wait for those parts to mature in order to get better prices.

Now, the additional complication here is that Qualcomm's latest MDM9x35 modem (category 6 LTE-Advanced) will be built on Taiwan Semiconductor's (NYSE:TSM) brand-new 20-nanometer process. Word has it that, ironically enough, Apple is hogging much of the initial 20-nanometer capacity for its upcoming A8 apps processor, which means that supply of 20-nanometer will be tight and wafers will be expensive. Since Apple needs to limit the impact to its margins in moving to the iPhone 6 from the mature iPhone 5s, the latest and greatest 20-nanometer modem from Qualcomm will probably be too expensive right at the get-go.

What will Apple use, then?
It's likely, then, if the assumption is correct that Apple will use Qualcomm's MDM9x25 category 4 LTE-Advanced modem, which is built on the mature 28-nanometer process and has been out for approximately a year. This will be a nice step up from the MDM9615 currently found in the iPhone 5s, as it will add LTE-Advanced features and higher download speeds, although it won't have the very high theoretical throughput of Qualcomm's latest. That being said, in the real world, these maximum theoretical download speeds are hardly ever reached, and it is unclear if the carriers will even have the infrastructure in place to really take advantage of all of these latest features.

There is a small chance that Intel was able to get Apple onboard with its XMM 7260 modem for some SKUs. This modem would be suitable for carriers for which CDMA support is not necessary (so for iPhones deployed on, say, Verizon (NYSE: VZ) or Sprint (NYSE: S) a Qualcomm modem is required). It would be good for Apple to have a second source in modems (since it can squeeze both suppliers on price, improving Apple's margin), but it's unclear whether the additional engineering work to build multiple flavors of the iPhone would be worth it to get a second source on the modems.

Foolish bottom line
Apple is a master of supply-chain management, and while the iPhone 6 is probably going to be an absolutely stunning device, Apple is too smart to chase super-high-end, costly modems when the benefit to the user -- especially given what kinds of download speeds one can realistically get on most networks -- is unlikely to be noticeable. My bet is that Apple continues its strategy of staying one product off Qualcomm's leading-edge modems for cost (and, indirectly, availability) reasons.

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Ashraf Eassa owns shares of Intel. The Motley Fool recommends Apple and Intel and owns shares of Apple, Intel, and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

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