With the iPhone 7-series of smartphones, microprocessor giant Intel's (NASDAQ:INTC) long-struggling mobile division caught a huge break. Apple (NASDAQ:AAPL), which had previously used cellular modems from wireless giant Qualcomm (NASDAQ:QCOM) exclusively for many iPhone generations, finally decided to dual-source, with Intel reportedly getting around 30% of the iPhone modem orders.
One report also suggests that because of the ongoing legal battle between Qualcomm and Intel, Intel might wind up seeing its iPhone modem allocation surge from 30% during the iPhone 7-series cycle to something on the order of 70% in a couple of generations.
If Intel winds up shipping the bulk of Apple's iPhone modems, that would be a solid PR win, and it would further fuel the company's cellular technology efforts.
However, DigiTimes -- the source of the numbers I mentioned -- also had the following comment to add that shouldn't be ignored (emphasis mine):
"Some market watchers believe Apple is unlikely to be willing to let Qualcomm take over control of its supply strategy, and with its rich R&D resources and cash, the U.S.-based smartphone vendor has a big chance to begin internal R&D for in-house baseband solutions. If such assumptions come true, Apple's orders for Intel's baseband chips may be strong for the short terms but may not last for a long time, meaning this is a friendship of convenience rather than a long-term strategic partnership."
This comment leads me to wonder: What would become of Intel's cellular efforts if it lost Apple's orders?
The amazing vanishing revenue
Although Intel sells cellular modems into non-iPhone devices, such as 2-in-1 personal computers, the overwhelming majority of the company's cellular modem revenue comes from the sale of standalone cellular modems to Apple. If Intel loses Apple's iPhone modem business, then its cellular modem revenue would probably be very close to zero.
Other cellular modem makers, such as market leader Qualcomm, sell chips incorporating their cellular technology to many customers, usually in the form of a cellular baseband integrated with an applications processor. Apple is the only major smartphone vendor to my knowledge that doesn't use a single-chip applications processor and cellular baseband solution.
If Qualcomm loses Apple's chip business, it's not great news, but its chip business is by no means built around Apple. In fact, because Apple only uses standalone modems rather than integrated applications processor and modem solutions from Qualcomm, Qualcomm probably sees less revenue per unit from the sale of each iPhone than it does from the sale of many other smartphones incorporating its technology.
Would Intel continue developing modems in this case?
Despite its cellular division's high reliance on Apple, Intel has consistently maintained that connectivity technology, including cellular connectivity, has broad applicability across its technology portfolio. Intel's landing page discussing 5G wireless technology, for example, says the Internet of Things "will leverage 5G like no other technology."
It would seem, then, that the company has a rather rich long-term vision for the applicability of connectivity technology outside its win at Apple. However, given that Intel has a history of bailing from markets when they become too difficult to compete in (see: smartphone and tablet applications processors), I'm not totally convinced that Intel would continue to have such a robust view of the cellular market if it didn't have Apple as an anchor customer.