Why This iPhone 6 Rumor Makes Perfect Sense

A new report suggests that Apple won't be using Qualcomm's latest modem. Here's why it makes sense.

Aug 26, 2014 at 3:30PM

It's no secret that while many high-end smartphone vendors like Samsung and HTC are in a heated battle to offer the latest-and-greatest features in their respective "hero" smartphones, Apple (NASDAQ:AAPL) takes a more conservative approach.

One example of such conservatism was Apple's use of the older 802.11n Wi-Fi standard rather than the latest-and-greatest 802.11 AC standard in last year's iPhone 5s.

"I don't believe you're missing out on a lack of 802.11 AC support today," wrote Anand Shimpi in his review of the iPhone 5s, "but over the life of the iPhone 5s I do expect greater deployment of 802.11 AC networks (which can bring either performance or power benefits to a mobile platform)."

This traditional conservatism on Apple's part is key to understanding a recent iPhone rumor from GeekBar (via Weibo), which alleges that the upcoming iPhone 6 will pack Qualcomm's (NASDAQ:QCOM) older MDM9x25 LTE-Advanced modem instead of its latest MDM9x35, as had been previously speculated by VentureBeat. 

Apple's goal is to maximize both user experience and gross margin
The smartphone market is brutal, particularly since the barriers to entry are lower than ever. Google's Android platform has given handset makers easy access to a powerful, rich platform, and the hardware required to put together a smartphone is readily available from a host of vendors.

Yes, Apple's scale and prestige allows it to -- perhaps -- get better deals on components than do the smaller, less prestigious vendors. However, this doesn't mean Apple need not be judicious in its component choices. 

Why MDM9x25 rather than MDM9x35?
The MDM9x35 is a more advanced modem than the MDM9x25, offering twice the theoretical download speed of the latter modem. It's also built on Taiwan Semiconductor's (NYSE: TSM) 20-nanometer manufacturing technology, which, according to the company, offers "30 percent higher speed, 1.9 times the density, or 25% percent less power than its 28nm technology."

Now, this all sounds great -- what premium smartphone vendor wouldn't want a faster, more efficient cellular modem chip?

The problem, though, is that this is Qualcomm's latest and greatest, so it would only be natural for the chipmaker to charge more for the MDM9x35 than it does for the older MDM9x25. On top of that, since the MDM9x35 is built on TSMC's brand-new 20-nanometer process rather than one of TSMC's mature 28-nanometer processes, manufacturing costs are likely to be higher -- adding to the premium Qualcomm is likely to charge for its latest modem.

Another thing to note is that while some carriers, like South Korea Telecom, have rolled out very high-speed LTE-Advanced networks that could take advantage of Qualcomm's latest chip, many carriers are still in the early stages of doing so. For example, GigaOm reports that AT&T rolled out its first LTE-Advanced networks back in March, and Light Reading reports that Sprint hopes to roll out LTE-Advanced support to enable "180 megabits per second peaks" broadly across its networks in 2015.

So, perhaps the MDM9x25, which supports 150 megabits-per-second transfer speeds (rather than the 300 megabits-per-second supported by the MDM9x35), is enough for the next iPhone. And, by the time carriers more broadly support higher maximum speeds, modems that support those speeds should be cheaper.

The Foolish bottom line
Although investors won't know exactly what components the iPhone 6 will pack, it does stand to reason that Apple would choose Qualcomm's MDM9x25 as the cellular modem for the device. It's faster and more featured than the modem found in the iPhone 5s, but at the same time, it's mature enough that Apple can include it without incurring a significant cost structure increase.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early, in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), 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.

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Jun 12, 2015 at 5:01PM

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