Expert: Apple's modem could save it $40-50B

Most of that is licensing fees for Qualcomm’s 5G technology.

From a comment to The Information’s Apple Developing Modem as Chip Efforts Expand ($) by Lei Ma, head of product at JingChi Corp:

Performance (speed & battery life), production (quality & supply guarantees), price, and patents are the four big reasons why Apple is designing yet another SoC [system on a chip].

The upcoming transition from 4G to 5G is a once-in-a-decade opportunity that reshuffles the balance of power in the consumer telecom industry. Apple wants to tip the scales away from Qualcomm, which is licensing its 5G patents anywhere between 2.275% and 3.25% of the device cost ($400 price cap), depending on the device type, customer, etc. Companies like Nokia and Ericsson offer much lower licensing prices, but Qualcomm is still expected to be the leader in 5G technology and intellectual property.

A conservative estimation to illustrate Apple’s business case:

• Apple will sell about 218 million iPhones in 2018, lets estimate iPhone sales decline in the next few years to 180 to 200 million phones per year.
• Assume Apple will license 5G patents from Qualcomm at 3% device cost.
• 5G will be a mainstream technology for 10 years (3G was mainstream roughly 2003 to 2012 and 4G from 2011 to 2021).

With these numbers, Apple saves a minimum of $21 to $24 billion in 5G licensing costs alone over the commercial lifespan of 5G. This doesn’t take into account the cost savings on manufacturing its own 5G modems and does not include other devices like iPad, iWatch, or other Apple IoT devices that have a 5G modem. Savings on 5G licensing costs can easily grow to $40 to $50 billion.

According to his LinkedIn profile, Lei Ma has designed RFICs (radio frequency integrated circuits) for Broadcom, Raytronics, Avago, RF Microdevices and Skyworks. 

My take: Apple’s plans to expand operations in San Diego, home to thousands of poachable Qualcomm engineers, suddenly make a lot more sense.