The Apple (NASDAQ:AAPL) iPhone 6 series, like all prior iPhone iterations, features a Broadcom (NASDAQ:BRCM) connectivity chip. The latest iPhones come with a 1x1 802.11ac capability, which implies the chip Broadcom is providing to Apple falls on the lower end of its 802.11ac offerings. Many competitors in the high-end of the Android market are using 2x2 802.11ac solutions, which offer significantly more peak bandwidth.
What this means is that to the extent that Apple dominates the high-end of the smartphone market, Broadcom should see a poorer product mix than it would if companies like Samsung were gaining share.
A question that I find particularly interesting is whether Apple will make the move to a 2x2 802.11ac solution with the next iPhone, or whether it will stick with the 1x1 802.11ac solution currently found in the iPhone 6.
What each scenario would mean
It is well-known that the older a chip is, the cheaper it gets. If Apple sticks with the same connectivity chip in the next iPhone, then -- assuming Apple remains the dominant premium smartphone player -- this could actually be an average selling price and/or margin headwind for the chipmaker.
If Apple moves to a 2x2 802.11ac solution, then I would expect that it would move to a more mature and lower-priced offering. This might not mean a big boost for Broadcom's average selling prices, but it would sure beat the decline that would come with reusing the current 1x1 802.11ac solution.
The next iPhone is already getting significant upgrades
According to AnandTech, Apple used the same 802.11n Wi-Fi chip in both the iPhone 5 and the iPhone 5s, opting not to upgrade the chip generation-to-generation. There is a fairly recent precedent, then, for Apple to use the same Wi-Fi chip for two generations in a row. This would help Apple maximize its margins (at the expense of suppliers like Broadcom), but some might argue that it would hamper Apple's competitive positioning.
An interesting argument to the contrary would be that Apple was able to rake in $18 billion in profit using the iPhone 6 series and its "mere" 1x1 802.11ac solution against flagship Android phones with 2x2 802.11ac solutions.
Additionally, rumors point to Apple already making a number of potentially costly upgrades in the next iPhone. For example, the move to an applications processor built on a 14/16-nanometer FinFET manufacturing technology are expected to raise per-chip costs. Apple is also expected to double the amount of memory in its iPhones, from 1 gigabyte to 2 gigabytes, and move to the newer, more costly LPDDR4 memory type in the process.
Finally, according to the Wall Street Journal, Apple is expected to add Force Touch to its next iPhones. It stands to reason that adding Force Touch, which requires Apple's "taptic engine," will also add to component costs.
While a new and more expensive Wi-Fi chip would be a nice improvement, it is not clear if Apple will be able to include one while maintaining acceptable margins. It might just be smarter for the company to wait another year for the current crop of 2x2 802.11ac solutions to come down in price.
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.