Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

What Apple's iPhone Production Cuts Mean for Intel

By Ashraf Eassa - Dec 5, 2018 at 7:00AM

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

Let's take a close look at the potential impact.

Chip giant Intel ( INTC 3.53% ) has long been a supplier of microprocessors to Apple ( AAPL 2.15% ) in support of the latter's Mac family of personal computers. Then, in 2016, Intel was added as a second supplier of cellular modems into Apple's then-newest smartphones, the iPhone 7-series. 

For Apple's most recent trio of iPhones -- the XR, XS, and XS Max -- Intel became the sole supplier of cellular modem chips, as the company's latest XMM 7560 modem added support for key cellular standards that were missing from its prior-generation modems.

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

Image source: Intel.

As a result, Intel reported that its cellular modem business saw revenue pop 131% year over year last quarter.

Now, with reports circulating of production cuts to Apple's latest iPhones, it might be worth taking a look at how such cuts could affect Intel's modem business. 

iPhone XR down, iPhone 8 and iPhone 8 Plus up

According to a report from Nikkei Asian Review a while back, Apple apparently told its contract manufactures to "halt plans for additional production lines dedicated to the [iPhone XR] that hit shelves in late October" and also increased production of both the iPhone 8 and 8 Plus. 

From a big-picture perspective, cutting iPhone XR production and boosting iPhone 8 and iPhone 8 Plus production should have two impacts on Intel's modem business.

The first is that such a shift would slow down Intel's modem share gains against Qualcomm ( QCOM -0.60% ) in the iPhone. While Intel is the exclusive modem supplier for the iPhone XR, it splits the iPhone 8 and 8 Plus modem orders with Qualcomm. In fact, on Qualcomm's most recent earnings call, CFO George Davis revealed that the company had "approximately 50% modem share" in Apple's previous-generation iPhones.

So to the extent that Apple is shipping more iPhone 8 and 8 Plus smartphones at the expense of the iPhone XR, Intel's share gain against Qualcomm in the iPhone in general is impeded. 

The other impact to keep in mind is that the iPhone 8 and 8 Plus use Intel's older XMM 7480 LTE modem rather than the newer, better XMM 7560 that's in the iPhone XR. It's common practice in the chip industry for prices of older components to come down over time, so a shift in iPhone sales from the XR to even Intel-based iPhone 8 and 8 Plus devices should have a negative impact on Intel's modem average selling prices and, ultimately, revenue and profitability. 

Not a huge deal, though

But even if Apple is scaling back production of its latest iPhones and may be shipping more of its older-generation models than it had originally thought, Intel's modem business is still set to enjoy solid growth this year, considering it has 100% share in all of the latest models and a good amount of share in Apple's older iPhones, too.

The reported production cuts to Apple's latest models and apparent production increase of the older models should lead to a reduced growth rate in Intel's modem business, but that growth rate is still set to be quite high.

On top of that, Fast Company reported a while ago that Intel will be the sole supplier of 5G modems in Apple's 2020 iPhone lineup. If we make the safe assumption that Intel will also be the sole supplier of LTE Advanced modems in the 2019 iPhone lineup, then Intel's modem share within Apple's iPhone lineup is set to continue to march higher over the next few years, helping boost Intel's modem revenue even if iPhone unit growth stays stagnant or even declines somewhat.

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.

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

Apple Inc. Stock Quote
Apple Inc.
AAPL
$165.32 (2.15%) $3.48
Intel Corporation Stock Quote
Intel Corporation
INTC
$50.99 (3.53%) $1.74
QUALCOMM Incorporated Stock Quote
QUALCOMM Incorporated
QCOM
$175.45 (-0.60%) $-1.06

*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
624%
 
S&P 500 Returns
140%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/06/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.