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Is Intel’s Smartphone Business About to Take Off?

Person holding a smartphone in one hand.

Smartphone giant Apple (NASDAQ: AAPL) is the only major vendor to use stand-alone modems in its devices, sourcing the chips from chip bellwethers Intel (NASDAQ: INTC) and Qualcomm (NASDAQ: QCOM) . But it looks like the iPhone maker is ready to make a switch this year, eliminating Qualcomm from the field by turning to Intel for all its modems, according to noted Apple watcher Ming-Chi Kuo of KGI Securities.

Let's see why this prediction might turn into reality, and what it could mean for Intel's smartphone business.

Person holding a smartphone in one hand.

Image Source: Getty Images.

Why Intel could become Apple's sole modem supplier

The earlier versions of Intel's modems supported GSM networks only, so they couldn't have been used exclusively in iPhones, and Apple had to use Qualcomm's chips because they carried CDMA support. CDMA (code division multiple access) and GSM (global system for mobiles) are the two major wireless protocols used by different telecom carriers.

For instance, the likes of Sprint and Verizon use CDMA networks, and they don't allow customers to switch phones without the carrier's permission because the devices don't have SIM cards. Phones that work on a CDMA network are specifically designed for that network, making it difficult for a customer to change networks without changing the phone.

Meanwhile, AT&T and T-Mobile support GSM networks that allow easy swapping of phones because they contain SIM cards. So, Apple had to cater to both network types in order to sell its iPhones across the major telecom carriers of the U.S., and Intel's GSM-only support means that Cupertino would have missed out selling its devices through Sprint and Verizon.

But the launch of Intel's latest XMM 7560 LTE modem has changed all that as it supports both networks. And the new Intel smartphone modem also supports the 4X4 MIMO (multiple input, multiple output) antenna design, which means that it employs four ports to receive and send data. By comparison, the current iPhones use 2X2 MIMO technology, so Intel's XMM 7560 modem will support faster LTE connectivity.

More importantly, Chipzilla's new modem brings it up to speed with Qualcomm as the latter was the only known chipmaker offering a modem supporting 4X4 MIMO. In fact, Qualcomm helped T-Mobile become the first carrier to support 4X4 MIMO connectivity in November last year, allowing customers to double their download speeds.

So Intel has now matched Qualcomm in smartphone modem technology, giving the former a good chance of monopolizing Apple's modem demand later this year. Intel has already started sampling the new LTE modem to "multiple customers," according to Intel executive Gregory Bryant, who went on to say that devices using this chip will be available later this year.

Apple's ongoing feud over royalties with Qualcomm could tilt the balance in Intel's favor. Qualcomm was recently slapped with a $1.2 billion fine by antitrust regulators in Europe for forcing exclusivity on customers, which prevented Apple from giving business to rival chipmakers. But the exclusivity agreement between Qualcomm and Apple expired in 2016, so Intel now has an opportunity to win significant business from Apple.

Kuo had earlier predicted that Intel will be supplying 70% to 80% of iPhone modems this year. But he now believes Intel will own the field thanks to competitive advantages it has gained with the technology upgrade to 4X4 MIMO, and because Apple would want to strong-arm Qualcomm into submission in their litigation battle.

What would this mean for Intel?

Intel's cellular modem business has been on the rise ever since it started supplying modems to Apple in late 2016. During the final quarter of calendar 2017, Intel's modem business saw a 26% jump in revenue, even though Apple was dual-sourcing iPhone modems using Qualcomm.

Intel could benefit from a potential increase in iPhone builds in 2018. According to Kuo, Apple's iPhone shipments could increase around 16% in 2018, so Intel could gain from a combination of higher numbers of iPhone builds and a stronger share of Apple's supply chain.

The close partnership between the two companies should bode well for Chipzilla in the long run as Apple could choose its 5G modems for future iPhone models.

The Fast Company had reported late last year that Apple and Intel engineers are working together to develop 5G technology for future devices. So in the long run, Intel should be able to sustain its tremendous momentum in cellular modems.

Intel's cellular modem shipments had quadrupled in 2016 after the win at Apple, according to Strategy Analytics. Then, the company recorded triple-digit shipment growth during the second quarter of 2017 at Qualcomm's expense.

So Intel's sales will receive a massive boost from a bigger share of Apple's modem demand this year and in the long run. This will positively impact the company's client computing group, which supplied just over half its total revenue last quarter.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and Verizon Communications. The Motley Fool owns shares of Qualcomm and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Intel and T-Mobile US. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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