When Apple (NASDAQ:AAPL) launched its iPhone 5s last year, one point of disappointment for Broadcom (NASDAQ:BRCM) shareholders is that Apple did not use an 802.11ac wireless connectivity chip. Some investors had been expecting Apple to transition to a more advanced, faster wireless chip, which, in turn, would have meant increased revenue per iPhone for Broadcom.
This year, the iPhone 6 finally got an upgrade to 802.11ac. I had speculated earlier that Apple might use Broadcom's recently announce BCM4358 802.11ac connectivity chip. However, when Apple announced that the iPhone 6 and iPhone 6 Plus would support single stream 802.11ac, the dual stream BCM4358 was out.
I waited patiently for the Chipworks teardown of the iPhone 6 to reveal the identity of the connectivity combo chip found inside of the iPhone 6, but so far, no luck. However, given what we know about the phone's connectivity capabilities, it's not hard to make an educated guess as to what chip Apple could have gone with.
And the chip is...
According to Broadcom's website, the BCM4335 is a single-chip 80211ac MAC/Baseband/Radio with Bluetooth 4.0 and an FM receiver. The specification page states that it supports 433.3 Mbps transfer speeds. Given that the BCM4334 that iFixit found inside of the iPhone 5s supports transfer speeds of up to 150 Mbps, this looks like a match.
Let's dig a little bit deeper into what this chip actually means for the next generation iPhone.
Let's talk cost
The BCM4335 was first introduced on July 24, 2012 with a "found in devices" date of the first quarter of 2013. It's built on a very mature 40 nanometer manufacturing process, which means that it should be very inexpensive to produce.
The BCM4335 is at least two generations removed from "bleeding edge," which leads me to believe that the chip sells near the midpoint -- perhaps slightly below, because Broadcom is not providing NFC to Apple, according to iFixit -- of the $3-$6 range that Broadcom has signaled that its connectivity combo fetches.
How about iPad?
While last year's iPhone 5s and iPad Air featured 802.11n Wi-Fi, the iPad Air included a technology called MIMO, or multiple-input multiple output, a technology that leverages multiple antennas to improve wireless performance. The iPhone 6 and iPhone 6 Plus don't utilize this technology; but, given historical trends, I wouldn't be surprised to see Apple utilizing a 2x2 MIMO 802.11ac solution in the iPad Air 2.
To achieve these speeds, Apple is likely to use either the BCM4354, or the newer BCM4358 from Broadcom. For margin/cost reasons, I would bet on Apple using the older generation part.
How do we know that Broadcom won these devices at all?
Throughout the discussion so far, the implicit assumption is that Broadcom won these devices. How do we know that this is even true without a positive identification from a teardown?
It's actually really simple. According to Broadcom CEO Scott McGregor on the company's most recent earnings call, Broadcom expects "strong sequential growth in mobile and wireless, driven by strength in connectivity." If Apple had chosen an alternative supplier for the connectivity chip, Broadcom would not have given such a bullish forecast for its connectivity business.
What does this say about Apple and Broadcom?
It looks to me that Apple continues to stay a generation or two behind for cost/margin reasons. While this won't help win over the hearts of the spec-obsessed crowd, the vast majority of users probably won't notice -- or care -- beyond the fact that it's much faster than the Wi-Fi in prior iPhone models.
In other words, Apple continues to find a solid balance between maintaining its gross margin profile, and delivering a strong user experience. This is exactly what Apple investors should applaud.
Now, for Broadcom investors, the situation is less clear. On one hand, Apple does pay Broadcom a hefty sum for its connectivity chips; but on the other hand, the more share that Apple gains in the smartphone market against its competitors, the poorer Broadcom's product mix could potentially be.
Foolish bottom line
As long as Apple's product launches lead to an overall expansion in the demand for high-end phones -- and iPhone sales growth isn't just due to share gains against competitors -- then Apple's apparent success with both the iPhone 6 and 6 Plus is a good thing for Broadcom's connectivity business.
The two things I'll be watching for next are what connectivity chip Apple uses in its next iPad and, perhaps more importantly to both Apple and Broadcom, whether Apple can help its iPad business return to growth after a few quarters of year-over-year declines.
Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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.