Apple (AAPL - Get Report) , a company with quite the reputation for being obsessed with the quality and performance of the parts that go into its hardware, appears set for the second year in a row to keep some of the modems going into its iPhones from operating at peak performance. And this time around, its decision stands to give Samsung, Alphabet/Google (GOOGL - Get Report) and other Android rivals a nice talking point.
Apple's actions say a lot about how hungry it is to lower its dependence on Qualcomm (QCOM - Get Report) amid an ugly legal battle over iPhone royalty rates. And they also lend credence to speculation that Apple is laying the groundwork for a full break with Qualcomm.
Bloomberg just reported that, as was the case for the iPhone 7, some of this year's iPhones will use Qualcomm 3G/4G modems, while others will use Intel modems. Also like last year, Apple will reportedly throttle the performance of the Qualcomm modems to keep them from exceeding the performance of the Intel modems.
However, the impact of such a move will be larger this year, both from a performance and a marketing standpoint. The Qualcomm Snapdragon X12 and Intel XMM 7360 modems used by the iPhone 7 respectively had maximum download speeds of 600Mbps and 450Mbps. By contrast, the Snapdragon X16 and XMM 7480 modems likely to be used by the iPhone 8 and 7S respectively have max download speeds of 1Gbps and 600Mbps.
Intel's XMM 7560 modem, announced in February, matches the X16's gigabit peak download speed. But Bloomberg's sources indicate that the chip -- like Qualcomm's Snapdragon X20 modem, which supports 1.2Gbps peak speeds -- won't be ready in time for this year's iPhone launches.
Thus, whereas Apple lowered the peak download speed of Qualcomm modems used by the iPhone 7 by 150Mbps, it will have to do by 400Mbps for the iPhone 8 and 7S. As Bloomberg notes, peak speeds are typically achieved only in lab conditions. But the problem runs deeper than that.
As a 2016 Cellular Insights study observed, Apple is throttling Qualcomm modems by preventing them from using more advanced modulation schemes and antenna technologies that they can support. That, in turn, makes them less efficient at using spectrum and impacts real-life download speeds, rather than just lab-condition peak speeds. Nonetheless, the study still found iPhones using the Snapdragon X12 delivering faster speeds than ones using the XMM 7360 when there was less-than-ideal signal strength.
The problem appears set to repeat with this year's iPhones. The Snapdragon X16 supports an advanced 4G LTE standard known as Category 16; Qualcomm claims this allows the modem to deliver gigabit download speeds using the same amount of spectrum as a modem relying on Category 9 LTE, which tops out at 450Mbps. Judging by its 600Mbps peak speed, Intel's XMM 7480, though more efficient at using spectrum than the 7360, likely supports an older LTE standard known as Category 12 on the downlink.
Nonetheless, Apple appears intent on partly relying on the 7480 for its iPhone 8 and 7S modem needs. Chances are that it would've abandoned Qualcomm fully had the 7560 been ready in time. That's because, unlike prior Intel modems, the 7560 supports the 3G EV-DO networks used by Verizon (VZ - Get Report) , Sprint (S - Get Report) and a few international carriers, and for which Qualcomm modems have largely been the only game in town.
A lack of gigabit LTE support on this year's iPhones is inconvenient for carriers such as T-Mobile US (TMUS - Get Report) , which have gone out of their way to promote their networks' support of the technology. It also gives Android rivals a chance to claim a technology edge. Samsung's Galaxy S8 supports gigabit LTE thanks to its use of Qualcomm's Snapdragon 835 processor (contains an X16 modem) and the company's own Exynos 8895 processor (has a Samsung-designed gigabit modem).
The same will presumably hold for the upcoming Galaxy Note 8. And after using Qualcomm's Snapdragon 820 processor in last year's Pixel phones, Google will probably use the 835 in this year's models. Various other Android OEMs are also expected to launch 835-powered phones, if they haven't already done so.
That spells a notable marketing disadvantage for the generally very marketing-savvy Apple. Of course, Apple's willingness to accept such a disadvantage for the sake of relying on Qualcomm less makes more sense when one remembers that the companies' relationship has devolved to the point where Apple is set to withhold (via its contract manufacturers) well over a billion dollars this year in iPhone royalty payments owed to Qualcomm, out of a belief that it should be paying a lower rate. And that Qualcomm has sued Apple and its contract manufacturers, and has been reported by Bloomberg to be planning to ask the ITC for an iPhone import ban.
As a result, the odds are high that Apple's 2018 iPhones will solely rely on Intel's XMM 7580 modem. It's also conceivable -- particularly in light of Apple's recent hiring of a senior Qualcomm chip engineering exec -- that Apple could now be developing a system-on-chip (SoC) that pairs an LTE modem with an A-series app processor. A 2015 VentureBeat report raises the possibility that such an SoC would be manufactured by Intel, and rely on the chip giant's modem intellectual property.
Whether or not that happens, though, Apple seems headed for a full divorce with Qualcomm's chip unit. Even if that spells slower download speeds for some iPhone users in the near-term.
Apple's shares fell 3.9% to $148.95 on Friday, amid a 1.8% decline for the Nasdaq. Qualcomm fell 1.8% to $57.05, and Intel fell 2.1% to $35.71.
Click here for the latest business headlines.
Editors' pick: Originally published June 9.
Correction: The article previously stated Qualcomm has requested an iPhone import ban from the ITC. It has been corrected to state that Bloomberg has reported Qualcomm plans to request an iPhone import ban.