Will Apple Buy Huawei's 5G Chips?

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It has been rumored in the media by people with inside knowledge of the matter that Huawei is "open" to selling its Balong 5G modems to Apple AAPL .

This isn't perhaps too surprising, given that Apple has come out underprepared to meet the 5G market by virtue of its dependence on Intel INTC , which has been notoriously slow to meet its production targets of late.

Intel was expected to have its 8160 5G modem ready for Apple to work on this year with the final chip to ship next year. This would allow Apple to launch its 5G phone next year, when most networks would acquire 5G capability as well.

It wouldn't have been a moment too soon, as almost everybody else will have a 5G capable smartphone shipping this year based on Qualcomm's QCOM technology, or their internally developed chips.

But Intel is reportedly seeing even more delays and Apple's internal developments aren't ready yet.

Moreover, of all the companies that could have supplied Apple, Qualcomm would have been the obvious choice because of the long standing partnership between the two. But that relationship soured after Apple took Qualcomm to court. Now, Qualcomm would likely demand a settlement if it is to supply any chips.

The second in line would be Samsung, which is a "frenemy" of Apple's, in that it supplies chips to the iPhone maker on the one hand, and competes with it in the smartphone market on the other. Samsung likely doesn't have the volumes that Apple would require anyway, so this source is also ruled out.

Mediatek is a company that could perhaps supply the volumes, but its chips are normally used in lower end phones.

That leaves Huawei, which has seen growing popularity both in Asia and Europe to the extent that it is now vying with Samsung to become the leading global supplier. Mr. Trump and his security officials see plenty of risk in Huawei selling telecom equipment in the U.S. because of information leaking out to China.

So supplying to Apple would allow the company to make some money in the region. But whether Apple (or Americans, for that matter) will allow this to happen is another story. Some users are already threatening to leave Apple if it engages with Huawei.

But Apple does have another option. It could stick with Intel for America and use Huawei technology in other markets, where people don't consider it a security risk. This actually makes a lot of sense because 1) Apple is losing share in China and has next to no share in India, the two biggest smartphone markets 2) with penetration rates going up, smartphone demand has been declining and the higher speeds and lower latency that 5G brings makes it a big reason to upgrade 3) it's advantageous for Apple to continue to build its installed base because of its new focus on the services business.

Apple shares carry a Zacks Rank #3 (Hold).You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

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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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