On wireless chip giant Qualcomm's (NASDAQ:QCOM) most recent earnings call, CEO Steve Mollenkopf made a very curious statement. He first reiterated the company's prior forecast that, by the fourth quarter of its current fiscal year, its chip business would enjoy operating margins of "16% of better." The long-term target, he pointed out, is "20%-plus."
After these claims, Mollenkopf made the following statement:
"It is important to note that for planning purposes, both our near-term and long-term margin targets have consistently factored in a range of second sourcing assumptions at our large customers, and we believe our margin targets are achievable under those scenarios."
This is hardly as direct as the statements that Qualcomm made in early 2015, when it announced that it would not be in the Samsung (NASDAQOTH:SSNLF) Galaxy S6/Note 5. That said, these statements have led many to believe that Qualcomm has confirmed that it will lose some share to Intel (NASDAQ:INTC) inside the upcoming iPhone 7-series phones.
Should investors now assume that Intel has definitely won a spot inside the next-generation Apple (NASDAQ:AAPL) iPhone? Let's take a closer look.
It seems very possible
At this point, Apple has certainly locked down the specifications of the iPhone 7, and the builds of components for the phone, if they're not already under way, should begin shortly. The fact that Qualcomm chose to remind investors that it has "consistently factored in a range of second sourcing assumptions" at major customers now is a pretty big clue that the company sees very real potential for share loss at Apple.
Any clues from Intel itself?
Since Intel is the company that's expected to be the "second source" here, it's worthwhile to see if Intel itself offered any clues as to whether it has won this business.
Combing through the comments that Intel management made on its April 19 call about the mobile business, I wasn't able to find anything that really strongly hints at such a win. Intel CEO Brian Krzanich did say that "mobile is absolutely continuing to grow for us as a segment" and claimed that profitability in this segment is improving.
CFO Stacy Smith added some additional color, noting that both product-level gross margin improvements as well as cost cutting will contribute to the improvement in mobile operating margin this year.
Winning roughly 30% (as rumored) of the Apple iPhone business isn't likely to do wonders for Intel's mobile efforts, but given how unsuccessful it has been to date, every little bit should help the company achieve its goal of improving mobile operating profit by (at least) $800 million.
Watch for the tear-downs
Apple is expected to launch its next generation iPhones in September 2016, so keep an eye out for tear-downs then; Apple is unlikely to name the vendor(s) of the modems in its phones, nor is it likely to allow those vendors to directly speak about design wins in the next iPhone. Note that many of the tear-down sites are based in North America, and it's likely that any iPhone models purchased in that region are likely to use Qualcomm modems, if only for CDMA support, which Intel modems lack.
An Intel modem is more likely to be found inside smartphones targeting emerging markets in which CDMA support is unimportant. I hope that the tear-down sites sample iPhones from various regions.