By Mike Freeman, The San Diego Union-Tribune
Rumors have been swirling for about a year that Apple would use Intel as a second supplier of cellular radio chips for the upcoming iPhone 7, dethroning San Diego’s Qualcomm.
On Friday, Bloomberg News added fuel to the rumors that 30 percent or more of iPhone 7 cellular modems would come from Intel.
It reported that the new iPhone 7s expected to launch on AT&T’s network this fall would have an Intel modem chip, as well as some iPhones sold in unnamed overseas markets. AT&T represents about 10 percent of annual iPhone sales, according to analysts.
The report cited unnamed sources. It also said Qualcomm retained Apple’s cellular radio business for iPhone 7s on Verizon’s network and for cellular operators in China.
Qualcomm declined to comment. Wall Street analysts said Friday that the report — if true – is most noteworthy because of AT&T.
While analysts had forecast that Qualcomm would not remain Apple’s sole supplier of cellular radios, they expected Intel modems to land in iPhones sold mostly in emerging markets — not at a big U.S. cellular operator.
“I think people were wondering if (Intel’s modem) might be in iPhones on other carriers internationally maybe,” said Stacy Rasgon, senior analyst with Bernstein Research. “AT&T is a major network. On the surface, would it be good enough for that? We’ll see.”
While Intel has made gains in its cellular radio performance, it still lags Qualcomm’s latest modem technology in terms of data rates and perhaps energy efficiency/battery life, said Rasgon.
“Maybe it’s good. That’s the thing we don’t know,” he added. “We will have to wait and see how the thing performs in six or eight months or whenever it’s in the hands of people.”
4G LTE launched several years ago. Qualcomm had a big performance lead on competitors when the technology first emerged. But over time, competitors have closed the gap.
Intel’s latest modem, on paper, has similar performance to Qualcomm’s older model chip that currently connects iPhone 6S smartphones to cellular networks, according to analysts.
“The technology has slowed down a bit. That has allowed others to catch up,” said Tavis McCourt, an analyst with Raymond James. “I am a bit surprised by the Intel choice at AT&T. But I think the logic must be that the incremental gains year to year in new LTE modems are not enough to justify solely using Qualcomm.”
Apple would be the first major win for Intel’s mobile chip business that has spent billions in research and development over the past several years.
Intel bought Infineon, which used to supply iPhones with modems when the smartphones were only sold on AT&T’s network.
Intel lost the iPhone business in 2011 when Apple began selling iPhones on Verizon and other cellular networks that relied on Qualcomm’s 3G CDMA technology. Qualcomm has exclusively supplied iPhones with modems ever since. Meanwhile, Intel has failed to get a major smartphone maker to buy its mobile chips and has just 1 percent market share. Qualcomm remains the market leader.
Verizon and cellular networks in China still use CDMA technology for voice and other functions, so it makes sense for Qualcomm to supply modems to Apple in those markets, said McCourt of Raymond James. Sprint also uses CDMA technology. The U.S. and China typically account for about half of iPhone sales.
The question becomes whether Intel also will supply modems for iPhone 7 smartphones sold in Europe, where cellular carriers are less reliant on being capable with 3G CDMA technology. Europe represents about a quarter of iPhone sales.
“If Apple is comfortable launching this on AT&T, they might be comfortable in Europe, too,” said McCourt. “But I would be surprised because it is the first year they would be using a modem chip from Infineon/Intel. So my assumption is they would start out with a minority share this year. If it works well, they will get a bigger share next year.”
In April, Qualcomm Chief Executive Officer Steve Mollenkopf told analysts on an earnings conference call that that a major customer probably would switch to multiple suppliers. The company chip business performance would continue to improve in the second half of 2016 even with the switch, he said.
Qualcomm’s shares ended trading Friday down $1.15, or 2 percent, at $53.83 on the Nasdaq. Intel’s shares gained 10 cents at $32.04.
©2016 The San Diego Union-Tribune Distributed by Tribune Content Agency, LLC.
