In 2016, Apple (NASDAQ:AAPL) adopted cellular modems -- chips that handle data transmission between devices and cellular networks -- from chip giant Intel (NASDAQ:INTC) to power a portion of the iPhone 7-series smartphones that it released in the fall of that year.
That design win represented the first big break for Intel's long-suffering mobile chip business.
Apple continued to use Intel modems in a portion of the iPhone 8-series and iPhone X smartphones that it introduced this fall, which led to further revenue growth for Intel's modem business, as Intel chips now powered Apple's current-generation as well as its last-generation devices.
Next year, says KGI Securities analyst Ming-Chi Kuo, Apple is expected to dramatically increase its use of Intel modems in its 2018 iPhones, with the analyst predicting that Intel will get between 70% and 80% modem share in those devices.
There's been a view out there that Intel's success at Apple has been largely due to the legal spat between Apple and Qualcomm (NASDAQ:QCOM), the latter of which had been Apple's exclusive iPhone modem supplier for half a decade. What happens if those issues were to be resolved, particularly if the resolution were to come about as a result of Apple-friendly supplier Broadcom's (NASDAQ:AVGO) successful purchase of Qualcomm?
Here's what Intel CFO Robert Swan had to say about that at a recent investor conference .
Swan said he believes it's Intel's ability to deliver increasingly competitive modems, rather than any other dynamics, that will determine whether the company can grow its cellular modem business and, by extension, its position at Apple.
"[H]aving an annual cadence of great product[s] ultimately is going to be the determinant of who is winning share and who is not," Swan said.
It's no secret, however, that Intel's cellular modems have lagged competitor Qualcomm's for several generations. Testing by Cellular Insights last year showed that the Qualcomm-based iPhone 7 smartphones offered better real-world cellular performance than the Intel-based ones, and a similar test performed this year once again showed that the Qualcomm-powered iPhone 8 and iPhone X devices deliver better cellular performance than the Intel-powered ones.
I believe, therefore, that Apple chose Intel chips for the iPhone 7-series and iPhone 8 and X-series devices for supply chain diversification reasons rather than based on product merit.
Intel's upcoming XMM 7560 could be substantially more competitive than the previous-generation parts were, though. Intel will have the benefit of having deployed two cellular modems in very high volumes, which could certainly have fed back into the development of the XMM 7560. And as Swan pointed out, the XMM 7560 will be built using a much more competitive chip-manufacturing technology -- Intel's 14nm technology -- than the XMM 7360 and XMM 7480 were. That could help, too.
Intel also seems to be committed to more aggressively transitioning its modems to its latest manufacturing technologies -- the company's upcoming XMM 7660 modem is reportedly going to be built using Intel's future 10nm technology, which should enable further power efficiency and performance gains.
Maybe beginning with the XMM 7560 Intel's modems will achieve rough technology parity with Qualcomm's modems, but that's something that I'd have to see to believe.