Is Apple (NASDAQ:AAPL) about to enter a new supplier relationship with Intel (NASDAQ:INTC), or is the iPhone maker just playing one chip maker against another? In a recent research note to investors, Cowen and Co. analyst Timothy Arcuri claimed that Apple is currently in talks with Intel over the possibility of having the company supply the baseband processor for the iPhone 7.
Baseband processors handle the radio functions found in smartphones, like the connection to a wireless mobile network. However, Arcuri also suggested that the talks between the two companies may simply be Apple’s way of strengthening its bargaining position with current baseband chip provider Qualcomm (NASDAQ:QCOM), which produces baseband chips for Apple via Taiwan Semiconductor Manufacturing Co.’s (NYSE:TSM) foundries.
“Our work there continues to suggest some evidence AAPL has re-embraced INTC in a bigger way for discussions around iPhone 7 (2015) but we continue to feel this is ultimately more of a ploy to obtain pricing concessions from Qualcomm and AAPL is ultimately unlikely to choose INTC for iPhone 7,” wrote Arcuri in a note obtained by Barron’s. “Regardless, we believe this certainly lends credibility to INTC’s LTE baseband efforts.”
While Arcuri believes it is unlikely that Apple will ditch Qualcomm, chipmaker Broadcom’s (NASDAQ:BRCM) standing with the Cupertino, California-based company is less certain. Broadcom currently supplies the Wi-Fi/Bluetooth combo chip found in the iPhone. However, as noted by Apple Insider, Arcuri believes that advances made by Qualcomm in this area could eventually lead Apple to use it in lieu of Broadcom.
On the other hand, Arcuri also suggested that Apple could move to in-house baseband chip production by buying the cellular baseband business that Broadcom announced it was looking to sell or “wind-down” earlier this month. “We see some evidence to suggest AAPL could be a potential buyer of the assets and engineers,” wrote Arcuri, per Barron’s. This is not the first time that Apple has been rumored to be moving its baseband production in-house. Earlier this year, unnamed industry sources cited by Taiwan’s DigiTimes suggested that Apple had plans to begin manufacturing its own baseband processors for use in the iPhone.
Although Intel hasn’t provided Apple with baseband processors for the iPhone since the iPhone 4, the chipmaker has supplied the central processors for Apple’s various Macs since 2005, when Apple switched from PowerPC processors. However, Apple continues to use chips based on ARM’s (NASDAQ:ARMH) architecture for its iPhones and iPads, rather than Intel chips.
It would be a cruel twist of fate for Intel if Apple was only dangling a baseband chip deal in front of it just to get a lower price from Qualcomm. Former Intel CEO Paul Otellini, who headed the company when Apple was preparing to produce the original iPhone, told The Atlantic that he missed a lucrative opportunity to make chips for the iPhone when Intel was unable to reach an agreement on how much Apple should pay for the chips.
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