Technology

Would Apple Dump NXP Chips to Poke Qualcomm in the Eye?

Paul Ausick

Published: February 5, 2018 2:00 pm

Last Updated: January 12, 2020 3:43 am

Reuters reported Monday that Apple Inc. (NASDAQ: AAPL) may drop Qualcomm Inc. (NASDAQ: QCOM) as a supplier of iPhone modem chips and replace it with a similar device from Intel Corp. (NYSE: INTC). The report pushed Qualcomm shares down about 3%.

Apple and Qualcomm are already entangled in competing lawsuits related to royalty payments to Qualcomm for their modem chips and patent infringement by Qualcomm over power management patents owned by Apple.

The dispute between the two firms also figures into the hostile takeover offer Broadcom Ltd. (NASDAQ: AVGO) sweetened just this morning from $70 a share to $82 a share. The offer contains a restriction: Qualcomm’s bid to acquire NXP Semiconductors N.V. (NASDAQ: NXPI), maker of the near-field communications (NFC) chips used in the iPhone to process Apple Pay transactions, may not be raised — it may only be completed on the existing terms or terminated.

The iPhone 7 used an Apple-designed A10 central processor and the new iPhone 8, 8 Plus and X use the next generation A11 “bionic” processor. While chip design is not a business for the faint of heart (or shallow of pocketbook), by designing its own CPUs Apple has gained a big advantage in smartphone performance. According to a report in Wired, the A11 offers about double the speed of Samsung’s Exynos chip used in the S8 and Qualcomm’s Snapdragon 835 that runs the Xiaomi 6.

Apple is essentially running a so-called fabless chip business, in which it designs the processors and then farms out the manufacturing. The company said last April it will drop its graphics processor supplier, and it is also reported to be designing its own power management chip.

Apple could even choose to go halfway and change suppliers for some of the chips it uses. Using Intel modems instead of Qualcomm devices is one example.

There was some speculation last November that Apple would replace the NXP NFC chips with devices manufactured by STMicroelectronics. Even if that speculation turns out to be wrong, Qualcomm’s pending acquisition of NXP may end up being less valuable than Qualcomm hoped if Apple drops NXP from its supplier list.

Don’t expect Apple to do anything to untangle all the questions surrounding its business with Qualcomm or NXP. Unless, that is, Qualcomm capitulates on the royalty issue.