Avago Technologies (NASDAQ:AVGO) is a semiconductor company that, among other things, provides radio frequency, or RF, components to smartphone vendors. One of Avago's highest profile customers is, of course, Apple (NASDAQ:AAPL).
During Avago's most recent earnings call, management said it expects its RF content in smartphones to grow at a robust 20% "every year." In fact, in order to meet this demand, the company plans to increase its ability to manufacture FBAR filters (a key component in smartphones that essentially filters out unwanted frequencies while allowing wanted frequencies to pass through) by 50% in the company's next fiscal year.
Additionally, Avago expects that its factories used to produce these filters will be running at "full capacity" in order to stockpile parts for "anticipated new phone launches in fiscal 2016."
Although it might not seem like it, Avago's expectations around RF content increases in smartphones, coupled with the fact it's putting its money where its mouth is vis-a-vis capacity, tells us quite a bit about Apple's plans for the iPhone 7 and 7s.
Expect significant RF content increases in the next two iPhones
Apple is a one of Avago's top customers; in fact, according to its most recent 10-Q filing, sales to Apple represented more than 10% of the company's net revenues over the last three quarters. It's highly likely that when the 10-Q filing for the company's fourth fiscal quarter is available, Apple will once again be a 10% customer.
In order for Avago to have the kind of confidence that it does about RF content increases in smartphones, the company probably knows what kind of RF content Apple is looking to include in several future iPhone generations. It's clearly going up.
Big boosts in cellular speeds coming over the next few iPhone generations
Given the increase in RF content in future iPhones, I can only assume Apple plans to fairly aggressively improve the cellular capabilities in future iPhones; in other words, don't expect Apple to keep cellular capabilities in coming iPhones flat as it did between the iPhone 5 and iPhone 5s.
I believe that with the iPhone 7, Apple will adopt Qualcomm's (NASDAQ:QCOM) X12 LTE modem, which offers download speeds of up to 600 megabits per second (twice that of the MDM9x35 inside of the iPhone 6s) and upload speeds of up to 150 megabits per second (thrice those of the aforementioned 9x35).
Where the increased need for RF is coming from seems pretty clear; the X12 LTE modem achieves its substantial downlink speeds through three carrier aggregation (the prior generation only implements two carrier aggregation) and the uplink speeds are achieved by two carrier aggregation (the MDM9x35 does not support carrier aggregation on the uplink).
Such improvements should drive up the need for additional RF content.
I suspect that with the iPhone 7s, Apple will again adopt a significantly faster Qualcomm modem, this time in the form of the X16 modem, which will reportedly boost maximum download speeds to a full gigabit per second.
Apple is seemingly getting quite serious about competing on specifications
Apple has historically been able to win market segment share even when its phones have been behind in certain specifications (i.e., cellular modem speed, screen resolution, and so on) due to a wide variety of factors.
In fact, all it really took for Apple to capture substantial share against high-end Android handsets was for the company to launch bigger screen iPhones!
However, Apple has seemingly picked the "low hanging fruit" with respect to share gains at the high end of the smartphone market. In order to continue to gain share, Apple will need to not only deliver innovative and interesting new features (such as Touch ID and 3D Touch), but it will also need to start "winning" in terms of hardware specs/features.
Apple doesn't need to go crazy with senseless features that add nothing to the user experience, but there are still some very useful/important features found in flagship Android devices that Apple didn't bring to the iPhone 6s this round (optical image stabilization and a higher resolution display -- features found on the iPhone 6s Plus -- come to mind here).
It would seem, at the very least, Apple plans to continue to be more aggressive in adopting next generation cellular modems. I'm sure we'll find out what other upgrades Apple has in store for the iPhone 7 in the coming months and whether my hypothesis vis-a-vis Apple and hardware specs proves correct.