Even with the next Apple (NASDAQ:AAPL) iPhone launch just days away, it's always fun to try to guess the details of the upcoming phone. Though an alleged logic board for the upcoming iPhone recently hit the Web (courtesy of Feld & Volk and Sonny Dickson), showing a number of the key components, not everything was revealed in that leak. In particular, we still don't know what connectivity combo chip Apple ultimately opted for.
One chip company that I follow and have written extensively about is chipmaker Broadcom (NASDAQ:BRCM). The company develops chips for a wide array of end markets, but its connectivity combo chips, which provide key functionality for many important smartphones, often steal the spotlight.
Interestingly, Broadcom announced a new connectivity chip known by the totally easy-to-remember part number of BCM4358. The chip, according to the Broadcom press release, is the "highest performing 802.11ac Wi-Fi and Bluetooth combo chip available."
Broadcom also made a point of noting that the chip is in production now and will be "shipping in mobile devices available in Q3."
So, that leads to the following question: Will this chip find its way into the iPhone 6?
Looking back to understand the future
When Apple introduced the iPhone 5, a teardown from iFixit revealed that the phone utilized Broadcom's BCM4334 connectivity combo chip, which the company announced in early 2012.
So, while Apple didn't transition to a newer 802.11ac connectivity chip for the iPhone 5s (opting, according to the iFixit teardown of the device, to reuse the BCM4334), it did use one of the most advanced connectivity chips available when it launched the iPhone 5.
This historical precedent suggests that Apple could choose this latest-and-greatest connectivity chip from Broadcom for the iPhone 6 and then stick with it for both the iPhone 6 and its follow-on (presumably called the iPhone 6s).
What are the implications for Apple and Broadcom respectively?
The iPhone 6 could be more expensive to make than the iPhone 5s. In addition to a newer industrial design that probably won't have production yields at the same levels as the iPhone 5s, Apple is likely to use more advanced and more expensive components -- potentially including the aforementioned new Broadcom chip.
This means that Apple might see a drop in its overall gross margin profile as the next iPhone ramps. From a total profit perspective, Apple can still come out ahead if it can drive significantly higher unit volumes relative to the prior iPhone, but we'll only know for sure as the quarterly results come in.
For Broadcom, this could mean an increase in the revenue and gross profit dollars it collects per iPhone sold. This is a big deal because about 28% of Broadcom's mobile and wireless revenue comes from selling chips to Apple.
Now, a customer like Apple is probably able to get good pricing (especially as competitor Qualcomm offers increasingly compelling chips), but I would still expect Broadcom to see uplifts in average selling price and margin if Apple adopts its latest connectivity chip.
Foolish bottom line
Though Apple could end up using one of Broadcom's older 802.11ac solutions to keep costs down, there's still a decent chance that Apple goes with the latest and greatest for the iPhone 6.
This would mean a margin hit for Apple and a margin uplift for Broadcom for the iPhone 6, but then when iPhone 6s rolls around, the tables turn as today's latest and greatest becomes tomorrow's mature. This means Broadcom lowers the price of that particular chip, helping Apple improve its own margins.
Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.