It's well known at this point that microprocessor giant Intel (NASDAQ:INTC) now supplies cellular modems into some of Apple's (NASDAQ:AAPL) iPhone 7 and iPhone 7 Plus models, splitting the orders with wireless giant Qualcomm (NASDAQ:QCOM).
Although it is a reasonable assumption to expect that Apple will, once again, use Intel's cellular modems in the upcoming iPhone 7s/7s Plus, investors shouldn't take such things -- especially when Apple is involved -- for granted.
On Intel's most recent earnings call, management strongly suggested that it will, indeed, be in the next iPhone.
The trajectory of Intel's modem business
Analyst Blayne Curtis with Barclays Capital asked management to give its "view on [its] modem product this year and next."
Krzanich said that the company's modem portfolio "continues to gain momentum."
"We've talked about our one large customer," Krzanich said in an obvious reference to Apple, "but we continue to get other interest in it."
Intel CFO Robert Swan added some additional financial color to Krzanich's comments. He pointed out that on a year-over-year basis, Intel's modem sales in the first half of this year will look good because the company's "large client" (Apple) "didn't ramp until the second half of last year," but that in the second half of this year the comparisons "get much tougher."
Despite the tougher comparisons that Intel's modem business is set to face next year, Swan said that "given the product we have, we feel relatively good about where we are."
Another iPhone win for Intel
At this point, Apple has likely finalized its component supply deals for the next generation iPhone. Intel, as well as the other players in Apple's supply chain, likely know their standing in the next iPhone. If Intel weren't in the device (or at least had a strong suspicion that it wouldn't be), then I'd expect the company to warn investors ahead of time.
Unless something goes seriously wrong with Intel's upcoming modem, known as the XMM 7480, it's a pretty safe bet that Intel will be inside yet another generation of iPhone.
That's obviously good news for Intel, as it should not only benefit from the ramp-up of the next generation iPhone models, but Intel will be able to gain share because the iPhone 7/7 Plus should become Apple's mid-range product line. Intel isn't inside Apple's current mid-range product line -- the iPhone 6s and iPhone 6s Plus -- so this is upside for Intel.
And, of course, when Intel wins at Apple, it happens at the expense of Qualcomm's own stand-alone modem business. Unlike Intel's wireless chip business, Qualcomm's smartphone chip business doesn't heavily depend on Apple (Qualcomm supplies chips to a wide range of phone vendors, large and small), so this share loss -- though clearly not desirable from Qualcomm's point of view -- isn't going to be a game changer either way.
With Intel's place in the iPhone seemingly secure for now, it'll be interesting to see what other business Intel can potentially get with its stand-alone modems. Remember that most smartphones today use integrated cellular modem/applications processor solutions, so it's hard to imagine that the non-Apple addressable market for stand-alone modems -- at least in the world of smartphones -- is all that large.
Where I could see possible success for Intel's stand-alone modems are in laptops and 2-in-1 Windows devices that require cellular connectivity. I could also see a company like LG, which is an Intel Custom Foundry customer for a high-end applications processor, pair an Intel modem with that applications processor for a select set of handsets.
Again, I don't have high expectations for Intel's stand-alone modems outside of Apple, but I nonetheless am interested to see what kind of incremental success Intel can find with its modem products.