In a separate piece, we have addressed that Intel didn’t meet the Apple deadline and therefore could not hit the 2020 iPhone production schedule. Intel has evaluated whether it wants to stay in modem business as it failed to make money with it for years now and decided to drop the 5G smartphone development and walk away.
Qualcomm X55 modem aimed at Apple
To step back a bit. Back at Mobile World Congress, shortly after the Snapdragon X55 announcement, I noticed that the product fits the Apple iPhone portfolio like a glove. Traditionally Apple would be the primary customer to buy a custom modem until last year.
Talking to some Qualcomm executives, we realised that the X55 looks like something that Apple would want. Naturally, there wasn’t a comment on that, but we figured we were on the right track. Qualcomm was confident that Apple would settle and come back, and this was always the feeling we got spending some time in chats with Qualcomm.
Lawyers had to put on a farce and blame each other, as each side wanted to win and with the settlement, this is behind us. Our initial analysis was always that they would settle as every single time two tech giants fight, it ends in a settlement. One can split hairs and try to prove who got the better end of the bargain, but again 2 USD EPS or even billions of dollars in back payments are less relevant than long term stability for both.
The Snapdragon X55 modem
The Snapdragon X55 is a single-chip multi-mode modem designed to allow OEMs to build 5G multimode devices. Sooner rather than later Snapdragon will get a 5G modem integrated but this is 2021 at the earliest as the initial customers will be OK with a two-chip solution, and 4G customers won’t like to pay the premium for 5G that early.
There will be a successor of X55 most likely announced in early 2020, but from where we stand, the variation of X55 will end up in the iPhone. Media speculates Samsung as a second source for 5G, but this is something that we have to see. Even Samsung uses Qualcomm for its first generation 5G phones that are about to start shipping in May /June 2019.
Stability replaces uncertainty
The most important take away that skyrocketed the stock from $57 to current $87.25 is the stability that brings the end to uncertainty. Yes, Apple will pay some money, and it will be buying some modems in the future and having a six year deal ahead is helpful. It ends uncertainty and brings Qualcomm to stability.
Qualcomm was recently under a lot of uncertainty, two years of NXP acquisition topped by Broadcom’s try to a hostile take over - well, both things behind us now. Apple and FTC were the last uncertainties, and now Apple is finished, and FTC is about to finish too.
Qualcomm settled its long-standing dispute with Samsung in February 2018 and back then talking with Cristiano Amon Qualcomm President shared his vision that they both plan to walk the same path to 5G.
Some fourteen months later Apple has come back to its senses and agreed to leave the legal battle behind and work with Qualcomm. Apple would be happier to have two suppliers and have Intel as a second 5G modem source, but Intel decided to quit the smartphone 5G modem game.
5G game-changing important
Apple is not naïve to disregard the importance of 5G. The company had to downplay 5G in 2019 simpley as it could not / didn’t want to offer it to customers later this year. It was evident to us, and we repeatedly stated that iPhone 2020 must have 5G as customers paying Apple’s premium for phones will desperately want faster modem downloads in fall 2020.
When it comes to smartphones, Qualcomm is the leader in 5G, and all of the first wave 5G phones outside Huawei will come with Qualcomm X50 technology. The X55 phones will start showing in late 2019 but more realistically in 2020 and bring faster 5G speeds and multimode. With time passing there will be more corners of the world getting on the 5G bandwagon with major metropolitan areas as a start position.
Apple's biggest threat are the Xiaomi, Oppo and Vivo who are eating up the mainstream/premium market share that used to be dominated by one or two gen iPhones for Apple lovers. These China Android giants combined with Huawei camera dominance as well as Samsung making a good come back with 10, are definitely making a dent in iPhone sales.
China Android manufacturers do a better job in pricing phones attracting a lot of customers who are not ok to spend over a $1000 for a phone.
