As expected, chipmaker Qualcomm (NASDAQ:QCOM) has emerged a winner with Apple's (NASDAQ:AAPL) latest iPhones. The company grabbed additional chip content over what it provided in last year's iPhone 5c and 5s, according to a teardown from iFixit.
Let's take a closer look.
That's a lot of Qualcomm chips
According to iFixit,, Qualcomm supplies the following chips into the iPhone 6:
- MDM9625M LTE-Advanced modem
- PM8019 RF PMIC
- WRT1625L RF transceiver
- WFR1620 companion chip
- QFE1000 envelope tracker [Author's note: Qualcomm lists this part as the QFE1100 on its website]
This is a fairly sizable step up in chip content from what Qualcomm provided in the 5s, which last year's iFixit teardown said featured the following:
- MDM9615M LTE modem
- PM8018 RF PMIC
- WTR1605L RF transceiver
It looks like the new iPhones add an RF transceiver companion chip and an envelope tracker from Quaclomm. This probably isn't a huge amount of incremental content per phone, but even if the two chips add up to something like $1-$2 per phone, that's a pretty sizable chunk of additional revenue for Qualcomm's chip business.
Qualcomm's chip strategy is paying off
Qualcomm's chip strategy in mobile has clearly been an entire platform play. The company is already the leader in mobile applications processors and cellular modems, but it has been aggressively pursuing more total smartphone chip content.
Two well-publicized ways in which the company is trying to expand its presence in the smartphone market are through the supply of RF chips and connectivity products (i.e., Bluetooth, Wi-Fi, and near field communication). In this case, Qualcomm succeeded in landing the envelope tracking slot in the latest iPhones.
A potential double-edged sword: device average selling price
Qualcomm's technology licensing business, or QTL, generates revenue per 3G and/or 4G LTE device sold. Sanford C. Bernstein's Stacy Rasgon pointed out back in 2009 that Apple enjoys what he called a "licensing loophole."
This loophole essentially means Qualcomm only receives royalties on the price that Apple pays its contract manufacturers for the phones, rather than what Apple charges its customers for the devices.
Nevertheless, Credit Suisse estimates peg the manufacturing costs of Apple's latest iPhones at meaningfully higher than those of the prior-generation iPhone. This likely means Qualcomm will see a boost in the per-unit dollars that it receives from the sale of iPhones.
The offset, though, is that Apple is probably not only going to just service the base of users who would already buy iPhones. Instead, it will probably take some market share from Android players such as Samsung.
This would not only impact QTL, but also the chip business. In particular, many high-end Android phones feature even more Qualcomm chip content than the latest iPhones do, so direct substitution of a high-end Android phone sale for an iPhone means Qualcomm is receiving less chip-related revenue.
When all is said and done, Qualcomm's chip and technology licensing businesses have a bright and vibrant future outside of Apple's latest iPhones. Nevertheless, even in the worst-case scenario in which Apple takes share from high-value Qualcomm customers, it's better that Qualcomm is now grabbing more content per iPhone -- chip-wise and probably royalty-wise.
My guess is that the incremental revenue from customers who would buy Apple phones anyway will probably offset any mix down for Qualcomm as a result of share gains on Apple's part.
All in all, this is the long way of conveying a simple thought: Qualcomm should benefit from a blockbuster iPhone 6 and 6 Plus rollout.
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.