KGI Securities analyst Ming-Chi Kuo, who routinely publishes accurate predictions about future Apple (NASDAQ:AAPL) iPhones, says next year's iPhone models will use cellular modems from both Intel (NASDAQ:INTC) and Qualcomm (NASDAQ:QCOM).
Next year's Qualcomm-based iPhones, Kuo says, will use Qualcomm's Snapdragon X20 LTE modem, which should be more efficient and more capable than the Snapdragon X16 LTE that powers the Qualcomm-based iPhone 8-series and iPhone X smartphones.
In addition, the Intel-based iPhones that Apple introduces next year will reportedly use Intel's upcoming XMM 7560 LTE modem. The XMM 7560 adds many new features over the XMM 7480 that Apple uses in its currently shipping iPhones, such as faster wireless speeds and compatibility on networks that implement the CDMA wireless standard.
It should also be substantially more power efficient than the previous-generation Intel modems, thanks to a multi-generational jump in the manufacturing technology used to build the chips.
Kuo says Apple will use Intel modems in between 70% and 80% of next year's new iPhone models, though he alsdo indicates that the percentage could move even higher. If Kuo's right, this is a solid win for Intel and a loss for Qualcomm, as well as its contract chip manufacturing partner, Samsung (NASDAQOTH: SSNLF).
Why this is a win for Intel
Since Intel's current XMM 7480 and previous-generation XMM 7360 modems don't support the CDMA standard, iPhones using those modems were only usable on cellular networks that don't implement the CDMA standard. That meant Apple was forced to rely on Qualcomm for the modems that power iPhones sold on CDMA networks, which put a cap on the amount of iPhone modem share that Intel could capture from Qualcomm.
Put another way, it meant Qualcomm was virtually guaranteed to supply a large portion of Apple's iPhone modem needs.
Since the upcoming XMM 7560 will support CDMA networks, Apple should, in theory, have the freedom to sell next-generation iPhones with either Qualcomm or Intel modems to customers using any network.
It's not too shocking, then, to see Apple reportedly planning to boost its allocation of Intel modems in the next iPhone and reduce its dependence on Qualcomm. Intel is certainly a friendlier supplier to Apple, and the current legal spat between Apple and Qualcomm probably isn't helping Qualcomm's ability to earn Apple's business either.
I also wouldn't be surprised if Intel were willing to give Apple a good deal on its modems in a bid to gain share. Intel would still win because it'd enjoy revenue growth from selling more chips to Apple.
Qualcomm would obviously lose here, because any gains on Intel's part must come at Qualcomm's expense. Samsung, Qualcomm's main contract chip manufacturing partner, would lose, too, because the fewer chips Qualcomm sells to Apple, the fewer chips Samsung will need to manufacture for Qualcomm.
The impact all around
For perspective, Apple claimed in its lawsuit against Qualcomm that a standalone modem solution costs in the ballpark of $20 per unit . If we assume that Apple sells about 200 million iPhones per year and that Intel currently has about 35% modem share in those phones, then for Intel to double its market share should translate into a roughly $1.4 billion boost in annual modem revenue over time.
From Qualcomm's perspective, that's a loss of $1.4 billion in revenue, and from Samsung's perspective, it's a loss of far less than $1.4 billion in annual revenue.
Considering that Intel's, Qualcomm's, and Samsung's annual revenues are on track to be around $62 billion, $23 billion, and $220 billion, respectively, this potential share shift in cellular modems just isn't going to be a huge deal for any of the three players involved.