With the iPhone 7-series smartphones, Apple (NASDAQ:AAPL) chose to source cellular modems from two vendors -- longtime iPhone modem supplier Qualcomm (NASDAQ:QCOM), and microprocessor giant Intel (NASDAQ:INTC).

Most chipmakers, including Qualcomm, are fabless, meaning they design their own chips but let third parties manufacture them. But Intel is an integrated device manufacturer, meaning it both designs and manufactures the chips it sells. The modem chips Intel sold to Apple in support of the iPhone 7-series smartphones, as well as the new iPhone 8-series and iPhone X smartphones, don't come from Intel but were built by a third party; however, the Intel modem that's expected to power at least some of next year's iPhones, known as the XMM 7560, is expected to be built by Intel using its 14nm technology.

A wafer of Intel processors.

Image source: Intel.

Here's why the XMM 7560 chip -- assuming, of course, Apple keeps using Intel chips in its iPhones -- has the potential to use up a significant portion of Intel's 14nm chip-manufacturing capacity.

Chip sizes and volumes

Apple ships more than 200 million iPhones per year, and during any product cycle, the bulk of its iPhone shipments are of its latest smartphones. KGI Securities analyst Ming-Chi Kuo expects Apple to ship between 245 million and 255 million iPhones in 2018, so if we assume Apple will be able to sell in the vicinity of 250 million smartphones per year from here on out, and if we assume that around 65% of units sold are of the latest models in a given cycle, then Intel should be set to ship nearly 50 million XMM 7560 chips to Apple during the next product cycle -- assuming Intel gets a 30% modem order allocation.

Now, sheer unit shipments aren't enough to tell us about the potential factory utilization of a product. We also need to know the size of the chips being manufactured. At this point, there's no way for anybody outside Intel or its major customers for the chip to get a reliable estimate for the size of the XMM 7560. However, we can look at the size of the XMM 7480 chip inside the iPhone 8-series smartphone and try to build an estimate from that.

TechInsights tells us the XMM 7480 modem, which is probably built on a foundry 28nm technology, measures 70.45 square millimeters. Let's assume that a migration from foundry 28nm to Intel 14nm would reduce the chip size by 50% to around 35.23 square millimeters. Then let's assume that to support all the improvements the XMM 7560 will bring over its predecessor, such as support for faster speeds and integrated CDMA capabilities, we'll add back another 25%. That would bring the chip size to approximately 44 square millimeters.

What is that equivalent to?

A mobile quad-core Intel Core processor measures approximately 123 square millimeters in Intel's 14nm manufacturing technology. That means that over the course of the 2018 iPhone cycle, XMM 7560 production would use about as much 14nm factory capacity as 16 million of today's mobile Core processors would.

Since Intel ships in the ballpark of 200 million personal computer processors each year, the XMM 7560 shipments have the potential to utilize the same amount of 14nm capacity that an 8% increase in the demand for Intel's mobile Core processors would. That's not a game changer, but higher factory utilization translates into lower average cost per wafer, which can improve both Intel's gross profit margin percentage and its bottom line.