Between Apple and Qualcomm, it's now a full-scale war.
In Qualcomm's earnings call today, CFO George Davis finally admitted what was considered a sure thing by most industry observers, including ourselves: Apple will scrap Qualcomm's wireless modem chips from all of its new iPhone models (X, X Plus...) that will debut this fall.
"We believe Apple intends to solely use our competitors' modems rather than our modems in its next iPhone release. We will continue to provide modems for Apple legacy devices," said Davis after Apple most likely didn't renew its contract with the chipmaker last month.
From 0 to 100% in 2 years
Qualcomm was Apple's exclusive supplier of wireless modems until 2 years ago, with the launch of the iPhone 7 and iPhone 7 Plus, when Intel began supplying chips for some iPhones that were not compatible with Verizon and Sprint CDMA networks.
We believe that Qualcomm currently holds about 50% of the global standalone wireless modem chip market, followed by MediaTek (25%) and Intel (6%), with Samsung, Huawei, and Spreadtrum taking the remainder.
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In a research note sent earlier today to clients, we explained that Apple will be using Intel's upcoming 7560 wireless modem, announced last year, which is finally CDMA compatible and pretty much on par with the performance of Qualcomm's current X20 wireless modem found in its Snapdragon 845 processor, adopted by most of this year's high-end Android smartphones like the Samsung S9, the OnePlus 6, the Oppo Find X or the Xiaomi Mi8.
Although we believe that the performance gap between the Qualcomm and the Intel modems part has significantly shrunk, the San Diego-based company still has about a 6 months lead over Intel with its upcoming X24 LTE modem and is about a year ahead in 5G modems.
So, can Qualcomm win Apple back?
For the 2018 iPhone lineup, that's a definite no, although Apple is still selling millions of older"legacy" iPhones (SE, 7 and 8) that use Qualcomm wireless modem chips.
However, in 2019, the San Diego-based company could potentially win back some, if not most, of Apple's modem business if Intel screws up the manufacturing of its next-generation modem (the XMM 7660) - that will be built on its own 10-nanometers fab instead of Taiwan Semiconductor Manufacturing Company's (TSMC) - and which is expected to be used in next year's iPhone.
A sentiment that Qualcomm president Cristiano Amon shared during the call.
"I think we've been very clear, and we don't expect to be in the next product launch, and we'll continue to support them with the legacy. We feel pretty good about our modem leadership. I think we disclosed there are some very interesting, I think, third-party customer reports that show our performance, and we will continue to be investing on modems. And if the opportunity presents itself, I think we will be a supplier of Apple."
But that's still a long shot, as Intel does have the option to go back to TSMC to manufacture its chips.
Lastly, we believe that Apple has tested iPhone designs incorporating wireless modems from Samsung which could very well be an option in case Intel can't fulfill its delivery commitments. The South Korean electronics giant is already supplying many iPhone components, including displays and memory chips, and would be a reliable second source for wireless modems.
