Please ensure Javascript is enabled for purposes of website accessibility

Is Intel’s Smartphone Business About to Take Off?

By Harsh Chauhan - Feb 16, 2018 at 4:06PM

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

The Apple-Qualcomm feud can help Intel win big in smartphone modems.

Smartphone giant Apple (AAPL 0.11%) is the only major vendor to use stand-alone modems in its devices, sourcing the chips from chip bellwethers Intel (INTC 1.27%) and Qualcomm (QCOM 2.10%). But it looks like the iPhone maker is ready to make a switch this year, eliminating Qualcomm from the field by turning to Intel for all its modems, according to noted Apple watcher Ming-Chi Kuo of KGI Securities.

Let's see why this prediction might turn into reality, and what it could mean for Intel's smartphone business.

Person holding a smartphone in one hand.

Image Source: Getty Images.

Why Intel could become Apple's sole modem supplier

The earlier versions of Intel's modems supported GSM networks only, so they couldn't have been used exclusively in iPhones, and Apple had to use Qualcomm's chips because they carried CDMA support.  CDMA (code division multiple access) and GSM (global system for mobiles) are the two major wireless protocols used by different telecom carriers.

For instance, the likes of Sprint and Verizon use CDMA networks, and they don't allow customers to switch phones without the carrier's permission because the devices don't have SIM cards. Phones that work on a CDMA network are specifically designed for that network, making it difficult for a customer to change networks without changing the phone.

Meanwhile, AT&T and T-Mobile support GSM networks that allow easy swapping of phones because they contain SIM cards. So, Apple had to cater to both network types in order to sell its iPhones across the major telecom carriers of the U.S., and Intel's GSM-only support means that Cupertino would have missed out selling its devices through Sprint and Verizon.

But the launch of Intel's latest XMM 7560 LTE modem has changed all that as it supports both networks. And the new Intel smartphone modem also supports the 4X4 MIMO (multiple input, multiple output) antenna design, which means that it employs four ports to receive and send data. By comparison, the current iPhones use 2X2 MIMO technology, so Intel's XMM 7560 modem will support faster LTE connectivity.

More importantly, Chipzilla's new modem brings it up to speed with Qualcomm as the latter was the only known chipmaker offering a modem supporting 4X4 MIMO. In fact, Qualcomm helped T-Mobile become the first carrier to support 4X4 MIMO connectivity in November last year, allowing customers to double their download speeds.

So Intel has now matched Qualcomm in smartphone modem technology, giving the former a good chance of monopolizing Apple's modem demand later this year. Intel has already started sampling the new LTE modem to "multiple customers," according to Intel executive Gregory Bryant, who went on to say that devices using this chip will be available later this year.

Apple's ongoing feud over royalties with Qualcomm could tilt the balance in Intel's favor. Qualcomm was recently slapped with a $1.2 billion fine by antitrust regulators in Europe for forcing exclusivity on customers, which prevented Apple from giving business to rival chipmakers. But the exclusivity agreement between Qualcomm and Apple expired in 2016, so Intel now has an opportunity to win significant business from Apple.

Kuo had earlier predicted that Intel will be supplying 70% to 80% of iPhone modems this year. But he now believes Intel will own the field thanks to competitive advantages it has gained with the technology upgrade to 4X4 MIMO, and because Apple would want to strong-arm Qualcomm into submission in their litigation battle.

What would this mean for Intel?

Intel's cellular modem business has been on the rise ever since it started supplying modems to Apple in late 2016. During the final quarter of calendar 2017, Intel's modem business saw a 26% jump in revenue, even though Apple was dual-sourcing iPhone modems using Qualcomm.

Intel could benefit from a potential increase in iPhone builds in 2018. According to Kuo, Apple's iPhone shipments could increase around 16% in 2018, so Intel could gain from a combination of higher numbers of iPhone builds and a stronger share of Apple's supply chain.

The close partnership between the two companies should bode well for Chipzilla in the long run as Apple could choose its 5G modems for future iPhone models.

The Fast Company had reported late last year that Apple and Intel engineers are working together to develop 5G technology for future devices. So in the long run, Intel should be able to sustain its tremendous momentum in cellular modems.

Intel's cellular modem shipments had quadrupled in 2016 after the win at Apple, according to Strategy Analytics. Then, the company recorded triple-digit shipment growth during the second quarter of 2017 at Qualcomm's expense.

So Intel's sales will receive a massive boost from a bigger share of Apple's modem demand this year and in the long run. This will positively impact the company's client computing group, which supplied just over half its total revenue last quarter.

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
INTC
$42.20 (1.27%) $0.53
Apple Inc. Stock Quote
Apple Inc.
AAPL
$140.52 (0.11%) $0.16
QUALCOMM Incorporated Stock Quote
QUALCOMM Incorporated
QCOM
$131.23 (2.10%) $2.70

*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 service.

Stock Advisor Returns
322%
 
S&P 500 Returns
116%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/26/2022.

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.