If chip giant Intel (NASDAQ:INTC) meets the financial guidance that it laid out in late October, the company will close out 2018 having delivered all-time record revenue, free cash flow, and earnings per share. For the company to generate so much revenue and profit -- its guidance calls for $71.2 billion in revenue, $15.5 billion in free cash flow, and $4.53 in non-GAAP earnings per share (EPS) -- it ultimately needs to sell products that customers want to buy.
Intel released a number of products in 2018, and I'd like to explain why I think this one product release stood out.
Taking lots of share
Intel's XMM 7560 LTE Advanced modem represented a strong product release worthy of recognition. The chipmaker has been in the cellular modem business for a while, but it wasn't until fairly recently that this business showed signs of life for the company. Indeed, it wasn't until the second half of 2016 that the company's modem business took off -- a direct result of Apple choosing to use the company's XMM 7360 for some of its iPhone 7 and iPhone 7 Plus devices. Apple tapped Intel again for the iPhone 8/iPhone X generation of devices, selecting the XMM 7480 modem for a portion of its then-newest iPhones.
However, with the XMM 7560, Intel took a big leap forward, which allowed it to win the entirety of the 2018 iPhone modem orders. The XMM 7560 added support for the CDMA and EVDO standards, which allowed smartphones based on the modem to work on major carriers that require that. By adding this feature, Intel opened up the opportunity to grow its modem share at Apple beyond models destined for non-CDMA/EVDO networks -- which it did, capturing the entirety of Apple's 2018 iPhone modem orders.
As a result, Intel's modem revenue grew by an impressive 131% last quarter.
On top of that, Intel's XMM 7260, XMM 7360, and XMM 7480 modems all had baseband processors manufactured by third parties on older-generation 28-nanometer technology. The XMM 7560, on the other hand, incorporates a baseband that's not only built on a more efficient 14nm technology, but it's also Intel's own 14nm technology rather than a third-party technology.
To be clear, I'm not saying that the XMM 7560 is the best modem in the market -- that's just not true, as third-party testing confirms. Qualcomm (NASDAQ:QCOM) has been shipping modems with capabilities similar to the XMM 7560 for a while, and is today selling superior modems (both in stand-alone form as well as integrated into applications processors).
What I am saying is that with the XMM 7560, Intel built a product that was so dramatically better than its predecessor that Apple was able and willing to bet its entire current product cycle on it. That's a worthwhile achievement on the part of the chipmaker.
After the XMM 7560, Intel is planning to introduce the XMM 7660. It's still a 4G LTE Advanced modem (Intel's 5G offering isn't slated to appear until 2020), but it promises to be a significant improvement over the XMM 7560. According to Intel, peak download speeds should rise to 1.6 gigabits per second (versus about 1 gigabit per second for the XMM 7560), and the modem supports more simultaneous bands than its predecessor (more than 45 for the XMM 7660, versus more than 35 for the XMM 7560).
I expect that Apple will use the XMM 7660 for the entirety of its 2019 iPhone lineup. The magazine Fast Company recently reported that Apple plans to tap Intel exclusively for 5G modem supply for the 2020 iPhones.
The longer-term outlook for Intel's stand-alone modem efforts is less clear. Indeed, The Informationrecently reported on its website that Apple -- far and away Intel's largest cellular modem customer -- is hard at work on its own 5G modem. As I said previously, if Apple were to successfully develop and deploy its own cellular-modem technology, it would be a clear negative for Intel's modem efforts.
Ashraf Eassa owns shares of Qualcomm. The Motley Fool owns shares of and recommends Apple. The Motley Fool owns shares of Qualcomm and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.