In the second half of 2016, Apple (NASDAQ:AAPL) introduced the iPhone 7 series of smartphones. One of the interesting things about these phones is that they, unlike their predecessors dating back to the iPhone 4s, used modems sourced from either Qualcomm (NASDAQ:QCOM) or Intel (NASDAQ:INTC), rather than from just Qualcomm.
For the last two product generations (the iPhone 7 series as well as the new iPhones that launched in the fall of 2017), Apple has sourced modems from both Qualcomm and Intel, and analyst Ming-Chi Kuo from KGI Securities seems to think that Intel is on pace to gain additional modem share in the 2018 iPhone models.
Later this year, Intel is expected to put into production a new modem known as the XMM 7560. Unlike the modems that Intel sold to Apple for the prior two iPhone generations, the XMM 7560 supports CDMA networks. This should allow Apple, if it wants, to use Intel modems freely across iPhone models -- something that hasn't been possible with Intel's previous two generations of cellular modems.
While I'm not entirely convinced by the reports claiming that Apple intends to cut Qualcomm entirely out of the loop for the next-generation iPhones, I think there's a chance that Apple could cut Qualcomm out of the rumored 6.1-inch LCD iPhone set to launch later this year.
A low-cost phone doesn't need the best modem
By way of reference, Apple is expected to release three new iPhones this fall: two high-end models with more advanced organic light-emitting diode (OLED) displays and a lower-cost device with a less advanced, 6.1-inch liquid crystal display (LCD).
The 6.1-inch LCD iPhone is expected to be the best-selling device of the three new iPhones that Apple introduces later this year, due to its relatively low price. Ming-Chi Kuo predicts that about 50% of the sales of the new iPhone models introduced later this year will consist of the 6.1-inch LCD model.
Additionally, Kuo says that component suppliers for the 6.1-inch LCD iPhone will "more likely center around 'new entrants' and 'market share gainers.'"
In other words, the component vendors willing to compete aggressively on price in order to gain market share are likely to be successful in winning spots inside of the 6.1-inch LCD iPhone.
It's well-known that Intel modems aren't as good as Qualcomm modems, but that hasn't stopped Apple from using Intel modems in its iPhones over the last few product generations.
I wouldn't be surprised, then, if Apple were to use Intel's XMM 7560 exclusively in the 6.1-inch LCD iPhone (since customers of such devices probably won't care that much about modem-quality difference). In fact, if Intel were willing to significantly undercut Qualcomm (which seems reasonably likely), it'd make perfect sense for Apple to go with Intel exclusively in such a device.
Higher-end models: Qualcomm inside
For the higher-end models, I could see Apple splitting the orders between Intel and Qualcomm. Alternatively, Apple could split the orders between the two companies for the upcoming 5.85-inch iPhone with an OLED display (in other words, the successor to the current iPhone X), while reserving the Qualcomm modems for the highest-end 6.46-inch iPhone with an OLED display.
Indeed, over the last two product generations, Apple has disabled features on the Qualcomm modems to normalize the features and capabilities of the Qualcomm modems to the inferior Intel ones. Such a normalization could make sense on the lower-cost 5.85-inch OLED iPhone, but on an ultra-expensive 6.46-inch OLED iPhone, it could make sense for Apple to use Qualcomm modems exclusively -- with full performance and features enabled.