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Why Apple Inc.'s "Modem Gate" Doesn’t Matter

By Ashraf Eassa – Nov 13, 2016 at 11:06AM

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This year's iPhone controversy is just as irrelevant to Apple's business performance as prior controversies were in years past.

In each of the past three Apple (AAPL 0.09%) iPhone product cycles, there's been some sort of controversy around the new devices.

Image source: Apple. 

The iPhone 6 Plus was controversial because the devices were prone to bending under a significant amount of pressure -- a situation critics referred to as "bend gate."

The iPhone 6s and iPhone 6s Plus didn't suffer from bend gate, but it turned out that Apple dual-sourced the manufacturing of the A9 processors inside these phones. One A9 manufacturer built more efficient chips than the other, and thus the "chip gate" controversy ensued.

The iPhone 7 and iPhone 7 Plus didn't suffer from bend gate, nor did they suffer from chip gate, since the A10 Fusion chip is sole-sourced this time around. However, a new controversy has arisen: modem gate.

This year, Apple decided to source modems from two vendors -- Qualcomm (QCOM 1.40%) and Intel (INTC -1.22%) -- and, unsurprisingly, a third-party report demonstrated that the Qualcomm modem is superior to the Intel modem.

Should Apple investors worry about modem gate? I don't think so -- here's why.

Does the modem matter to most consumers?

It's very unlikely that most smartphone owners are aware of the modem chips that power their smartphones. Buyers might have a general sense of the wireless capabilities of their phones -- LTE support, for example. The savvier smartphone shoppers may know that if they want to have the flexibility to change carriers, they should make sure to buy unlocked phones with support for the CDMA wireless standard some major networks require.

However, it's reasonable to assume that most buyers simply don't factor in the performance or features of the modem much, if at all, in making their purchasing decisions. Indeed, I'd be shocked if most consumers even knew that Apple is dual-sourcing the modems for the iPhone 7-series smartphones.

Factors such as form factor, camera, operating system, display quality, and storage capacity are probably much more important to the user experience and buying decisions than the modem is -- assuming, of course, that the modem used is good enough.

Qualcomm for the modem aficionados

For potential iPhone customers who care about getting iPhone models with the superior Qualcomm modems, there's a very easy solution: Buy an unlocked iPhone 7 or iPhone 7 Plus. The unlocked versions of these iPhones necessarily include Qualcomm modems, as the Intel modems don't support CDMA networks and thus wouldn't work on some major carriers.

If a customer is knowledgeable enough to know the differences in modem performance of the Qualcomm-based iPhone and the Intel-based one -- something that wasn't explored in most, if not all, of the mainstream reviews of the devices -- then that customer should have no problem identifying and purchasing the "right" model.

Much ado about nothing

There's no evidence to suggest that bend gate had any significant impact on iPhone 6 and 6 Plus sales, as the iPhone 6-series sold in record numbers. Nor is there any evidence to suggest that chip gate was influential, either, especially since the A9 chip, no matter the manufacturer, was easily the fastest smartphone processor on the market during its lifetime.

Modem gate is more of the same. It's fun for the tech press to write about, and for those who are into the technical stuff, it's interesting. But Apple's iPhone sales are primarily to the non-technical masses who simply want excellent devices. The iPhone 7 and iPhone 7 Plus models with the Qualcomm modems are clearly better, and I would recommend those to individuals looking to buy either phone, but I just can't see any meaningful impact to iPhone 7 and iPhone 7 Plus demand based on modem gate.

I can't wait to see what next year's "gate" will be. 

Ashraf Eassa owns shares of Intel and Qualcomm. The Motley Fool owns shares of and recommends Apple and Qualcomm. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool recommends Intel. 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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