In a research note by way of Barron's, analyst Rod Hall says that Qualcomm's (NASDAQ:QCOM) "baseband share position in the next-generation iPhone is becoming increasingly uncertainly because of the patent law suit." He is, of course, referring to the continued legal drama between Qualcomm and Apple.
"Although we expect Apple to continue to use Qualcomm, we are concerned that 2017/2018 iPhone baseband share could shift toward Intel (NASDAQ:INTC)," the analyst writes.
Here's why I believe a serious share shift from Qualcomm toward Intel in the upcoming iPhone product cycle is unlikely.
Intel can't take much more share
It's generally believed that Qualcomm's modems are used in iPhone models destined for use on networks that require support for the CDMA standard, since Intel's current modems don't support this standard, while Intel's modems are used in models sold into regions and networks that don't require CDMA.
For example, iPhone 7 models purchased from Verizon (NYSE:VZ) or Sprint (NYSE:S) -- both CDMA networks -- will necessarily use Qualcomm modems. However, iPhone 7 models purchased from AT&T (NYSE:T) or T-Mobile (NASDAQ:TMUS), on the other hand, should have Intel modems inside.
Although the exact ratio of Intel modems to Qualcomm modems that Apple uses isn't public knowledge, it's probably not too far off the mark to say that Apple is using Intel where it can and Qualcomm where it must.
Intel's upcoming XMM 7480, which is presumably the Intel chip that Apple will use in this year's iPhone models, doesn't fundamentally change this equation, as it lacks CDMA support. This situation suggests that Apple will have limited opportunities to swap Qualcomm out for Intel during this product cycle.
The next product cycle is totally different
If there is reason to be worried about Qualcomm's cellular modem share at Apple, it'd be about what Apple does with the follow-on series of iPhones, which will presumably launch in the fall of 2018.
Intel's follow-on to the XMM 7480, known as the XMM 7560, dramatically improves peak performance capabilities, adopts Intel's 14-nano manufacturing technology, and, most importantly, adds support for CDMA.
Once the XMM 7560 hits, Apple should be able to substitute Qualcomm's modems for Intel's, practically at will, placing Qualcomm's current share at Apple in jeopardy.
Now, as I've expressed in the past, I'm skeptical that Apple will completely cut Qualcomm out of the iPhone, even if Intel has the right technology to serve all of Apple's iPhone needs. Indeed, having multiple suppliers of such a critical technology is usually smart, and betting the farm on a single supplier that's only been able to build competent products for a couple of product cycles probably isn't wise.
That said, I wouldn't be surprised to see Qualcomm's modem share at Apple trend downward in the coming years, particularly if the legal spat between the two companies remains unsolved or is resolved bitterly.
Foolish bottom line
Obviously, it wouldn't be ideal for Qualcomm if it were to lose more baseband share at Apple; it's a solid source of revenue, and Qualcomm should probably try to hang on to it the best it can.
At the same time, though, losing Apple completely would be a setback but certainly not a world-ender for Qualcomm's chip business. Qualcomm ships a lot of relatively high-value chips -- namely, its integrated Snapdragon applications processors and modems -- to a wide range of smartphone customers, ranging from value devices all the way through premium flagship devices.
As long as the smartphone market remains healthy, and as long as Qualcomm can continue to maintain and grow its market share across the broader smartphone market, then its chip business should -- over the long term -- be OK without Apple, should it ever come to that.