Later this year, Apple (NASDAQ:AAPL) is expected to launch new iPhones. They're expected to include, among many other features, an upgraded cellular subsystem that's capable of peak download speeds of 1,000 megabits per second (1 gigabit) -- a 66% increase from the 600 megabits per second that the current iPhone 8 series and iPhone X smartphones are capable of handling. 

According to analyst Ming-Chi Kuo with KGI Securities, Apple was set to use gigabit LTE modems from chip giant Intel (NASDAQ:INTC) across its product lineup, cutting out longtime Apple modem supplier Qualcomm (NASDAQ:QCOM) entirely.

An Intel XMM 7560 modem next to a pencil eraser and a penny.

Image source: Intel.

However, according to a new report from Fast Company, citing "a source with knowledge of Apple's plans," Intel won't win the entirety of Apple's iPhone modem orders this year -- it'll win just 70%. 

The good news for Qualcomm is that its share of the iPhone modem spots won't go to zero and the good news for Intel is that while it won't have the entirety of the iPhone modem orders this year, it's set to have the majority (up from what was likely a minority position). That'll help drive solid year-over-year growth in Intel's modem business. 

That said, the long-term prospects for Qualcomm at Apple don't look good while the prospects look increasingly bright for Intel. Here's why. 

Why Intel didn't win more

Fast Company claims that Intel "had hoped to provide an even higher percentage of the modems in this fall's new iPhones," but since this year is the first year that Intel is building the modems that it's selling to Apple inside its own factories (previous modems were manufactured elsewhere), Apple is reportedly taking a wait-and-see approach. 

Fast Company, however, seems to hedge its bets by claiming that if Intel falls short, Qualcomm could supply more than 30% of the modems in the upcoming iPhones, but that if Intel "can produce enough chips on time and on budget it could get more than the planned 70%."

What's interesting is that Apple's apparent hesitance to use Intel for more of the upcoming iPhones doesn't seem to be due to modem quality (an area where Intel has trailed Qualcomm in the past), but instead due to manufacturing yield rates. 

Fast Company's source claims that the yield rates on Intel's modem chips -- that is, the percentage of the chips that are actually usable -- are very low at around 50%. This is quite troubling considering that the underlying manufacturing technology that these modems will be built on has been in volume production for around four years and is quite mature. 

Intel's reported manufacturing woes could be due to a flaw in the design of the chip rather than an issue in the underlying manufacturing technology, particularly since this is the first time Intel's modem team has used an Intel manufacturing technology, which is typically harder to design chips for than third-party technologies. 

On the bright side, Fast Company claims that Intel's engineers are "confident they can work out the bugs and push up the yield rates before production ramps into high gear in June and July." 

The 2019 iPhone could be all Intel's

Fast Company claims that if "all goes well" with this year's iPhones, Apple could rely on Intel for 100% of the modems that it buys for the iPhones that it launches in the second half of 2019. In that case, Qualcomm would see another reduction in iPhone-related revenue while Intel's modem business would get yet-another boost. 

One thing that gives me pause, though, is that the follow-on to this year's XMM 7560 modem, the XMM 7660, is reportedly set to be manufactured using Intel's 10-nanometer technology, the successor to the 14-nanometer technology that's being used to build the XMM 7560. 

If Intel is struggling to build the XMM 7560 at good yield rates using an extremely mature technology, then it seems a little tough to believe that the XMM 7660 will fare any better, as it'll be manufactured on a technology that's apparently proving quite problematic

We'll just have to see how it all shakes out.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.