Tier-1 Smartphone Ramp For Intel

Back in November, it was reported that Intel (NASDAQ:INTC) may be working to win some modem design and production for the Apple (NASDAQ:AAPL) iPhone series, and that it may also be working on the future A10/A11 SoCs.

In another rumor, it was reported that the company was working on the LG (OTC:LGEAF) Nuclun 2, which points at the fact that Intel is making tests for the application processor (AP) market.

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Image Credits: AppleInsider

But things have changed recently, putting Intel in a different and really a better position as regards the mobile hardware market (modem, application processors and WiFi/BT maybe), while Qualcomm (NASDAQ:QCOM) is under threat.

Intel's iPhone Modem Design Win

It has been reported that the company has probably won the 30-40% of the next iPhone 7 modem production, mainly for those markets where CDMA is not required. It is possible that Intel modems could also be supplied for the upcoming iPhone 5SE, even though it would be quite difficult due to the timing (but not impossible).

Image Credits: Nexus Update

But which modem is it? Considering that 1000 people are working on this modem, it is very difficult to see a simple XMM 7360 inside future iPhones, since it is already commercialized and is designed at 28nm, meaning that it would have a great disadvantage against the 2016 Qualcomm counterpart. As regards the speed concerns, the declared speeds are not achievable by any carrier, which means that it is not the main discriminating factor.

It would make a lot more sense to have an updated XMM 7360 or XMM 74X0:

An updated XMM 7360 would have to be redesigned to be built with a 14nm node, while CDMA adoption would be possible through the CDMA acquisition at the end of 2015 (but this would essentially be an XMM 74X0).

The XMM 74X0 was reported to sample during 2H 2016, ramping up in 1Q 2017. However, Apple has already managed to obtain hardware anticipations and/or temporary exclusives from Intel in the past. In addition, the fact that the supply is only for 30-40% of the future iPhone means that the overall volume is about 70-90 million modems, not the entire 200+ million volume. Finally, the XMM 74X0 is already set to implement CDMA support.

The XMM 7360 at 28nm may still make sense if it is confined to the iPhone 5SE, but considering that this smartphone is likely to mount the A9 SoC (16 nm), the adoption of a 28nm modem still doesn't make so much sense (while the previous two Qualcomm modems were built using 20nm node). Besides, the iPhone 5SE is rumored to be released this month, making the Intel modem adoption quite difficult.

Greater Chance To Get APs Too

The modem design win may also translate into additional business related to the future iPhone 7S, which is set for release in late 2017. Taking for granted that the A10 will be produced by TSMC (NYSE:TSM), the A11 remains an open challenge:

Apple generally likes to have multiple suppliers in order to avoid supply delays and put pressure on prices.

TSMC earthquake issues may push Apple to defer its production another time.

Samsung's (OTC:SSNLF) plan to improve its foundry scalability may leave a margin for a price per unit reduction in relation to an eventual Apple supply.

Since Intel has already won part of the iPhone modem production, a future production of A11 by Intel would make sense.

Intel needs massive tier-1 smartphone production in order to become a first mobile market player, and therefore, good prices are possible (but forget contra revenues).

Intel 14nm is denser than Samsung or TSMC. The same goes for Intel 10nm, which is much denser than Samsung or TSMC 10-7nm.

Intel 10nm production is set for 2017, in perfect time for the A11 SoC.

In 2017, a combo order with both A11 and modem would likely drive down the price per unit through scalability.

As a modem supplier, Intel is sensible because Apple is targeting to integrate the modem in future SoCs. Thus, using Intel foundries to integrate Intel modems inside Apple SoCs is quite logical and efficient.

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Image Credits: SpazioTech

In my opinion, Intel may also infiltrate another Apple supply market: the WiFi/BT combo chip and the relative power management chip. The company is already working on switching its chip production towards the 14nm node, so a combo chip joint with the XMM modem could be a feasible solution. Maybe it won't make it for the iPhone 7, but the iPhone 7S (or Pro) will likely be the right device to see a WiFi/BT combo chip from Intel.

Thus, there are various reasons for Apple to change its supply policy, and Intel is particularly attractive right now.

Intel's Overall Picture

As I have already shown in the past, Intel's overall picture is a larger one:

The Santa Clara company is testing Core M with affordable TDPs for phablets.

It is going to release the Goldmont architecture in mid-2016, which is derived from the Broadwell/Skylake development flow.

The company is working with Microsoft (NASDAQ:MSFT) on the future Surface Phone, which will probably be a top-end device.

SoFIA will switch to 14nm (with Intel foundries), and it will hit not only the low-end market, but also the mid-end.

These SoCs are also related to the IoT market and the VR market (Intel is reported to be working on a personalized VR, while it supplies SoCs for Microsoft Holo Lens).

3D Xpoint may be suitable to join Intel SoCs in the near future.

The scenario is very wide, and the company is improving and preparing different approaches to strike both the low/mid-market and the high-end market.

Takeaway

CLSA states that modem supply will bring 1.5-2.0% of revenues and earnings to Intel, while Qualcomm will lose -4.0% of revenues and -2.0% of its earnings.

For what concerns Intel, 1.5-2.0% of revenue would translate into $830-1100 million, but if the company able to sell even its WiFi/BT combo chip and the relative power management module, the revenues would increase by 2.4-3.1%, or $1290-1720 million.

And what if Apple entrusts the A11 production to Intel? If we consider a supply of the 30-40% of actual iPhone sales, Intel would generate revenues for an overall 4.7-6.3%, or $2610-3480 million. Obviously, if the entire production was entrusted to Intel, the overall revenue increase would go beyond 15%, or $8 billion. Such an increase, driven by a sole customer in the mobile sector, would be great for Intel, which is still struggling in the mobile market.

On the other hand, Qualcomm would be hit, seeing its revenue market crash by 4-35% (depending on which kind of deal Apple and Intel will make in the months and years to come). TSMC would face a similar fate, since it produces all the Qualcomm products used by Apple.

It is quite peculiar how a single product, given the specific situation, may trigger a lot of market changes. Intel is posed to surge in the mobile market, but it all depends on its capacity of winning some design for a tier-1 smartphone. If the company able to do it, the low/mid-end strategy (SoFIA) will be a great help in infiltrating every end market.

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