Please ensure Javascript is enabled for purposes of website accessibility

Intel Corp.'s Modem Sales Surge, Thanks to Apple Inc.

By Ashraf Eassa - Oct 31, 2017 at 6:37PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

New iPhones as well as legacy iPhones contribute to solid growth in Intel's modem biz.

On chip giant Intel's (INTC -2.86%) most recent earnings call, company management said its shipments of cellular modems -- critical components that allow smartphones and other devices to connect to cellular networks -- grew 37% year over year during its most recent quarter. Cellular modem revenue is included as part of the "Other" category within its client computing group (CCG) results.

The "Other" category includes not just cellular modems but other non-processor components such as Wi-Fi and Ethernet chips. This segment brought in just $728 million in revenue last quarter, a mere fraction of CCG's total $8.86 billion in sales during that time, but investors should welcome Intel's attempt to diversify its revenue with an increasingly broad range of products.

Apple's iPhone X.

Some of Apple's new iPhones have Intel modems inside. Image source: Intel.

Let's go over what drove that 37% increase in cellular modem revenue year-over-year and see what it ultimately means for Intel's business.

One big customer

Intel's major cellular modem customer is Apple (AAPL 1.62%). Intel began supplying modems to Apple in the second half of 2016 with the launch of the iPhone 7-series of smartphones, which was widely seen as the big break that Intel's modem business needed. Fortunately for Intel, the iPhone 7 modem deal wasn't a one-off -- Intel continues to supply cellular modems to Apple for its latest iPhones, the iPhone 8, iPhone 8 Plus, and iPhone X.

It's not hard, then, to see why Intel's modem sales were up so much last quarter. Not only does Intel benefit from the ramp-up of shipments in support of Apple's latest phones, but this is also the first iPhone product cycle in which Intel modems will power Apple's previous-generation smartphones in addition to the newest models. The increased presence of Intel modems across Apple's overall product portfolio certainly helps.

On top of that, Apple seems to be just now ramping up production and shipments of the iPhone X, which is arguably the biggest update to the iPhone lineup in years. Should sales of the iPhone X prove robust, triggering the so-called "super cycle" that many analysts and investors are talking about, Intel's modem business could be set for an acceleration in its growth rate in the coming quarters.

Beyond Apple

Although Intel's success at Apple is clearly the lifeline that the company's fledgling cellular modem business needed, some investors may be wondering if Intel can expand the reach of its cellular modem technology beyond Apple.

The answer to that question is tricky. Most smartphones other than Apple's iPhones don't use standalone modems; they use applications processors with the cellular baseband processor integrated inside. Since Intel is in the business of selling standalone modems, it'll probably have a hard time expanding its reach in the smartphone market beyond Apple.

Outside the smartphone market, Intel's technology could have a real shot. For example, Intel CEO Brian Krzanich said on the earnings call that the company shipped its "first modem into the auto industry."

To the extent that automakers continue to adopt cellular modem technology in their vehicles to enable features such as in-car Wi-Fi, Intel's opportunity should grow. It won't face this market uncontested, but as one of the few modem suppliers capable enough to supply modems into a product like the iPhone, it'll have a reasonable shot at winning some serious automotive modem business.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Intel Corporation Stock Quote
Intel Corporation
$36.34 (-2.86%) $-1.07
Apple Inc. Stock Quote
Apple Inc.
$138.93 (1.62%) $2.21

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.