Intel (INTC) Gains on Report of Big Apple (AAPL) Win

Intel (NASDAQ: INTC) is sharply higher Wednesday amid reports from VentureBeat that the company will provide a new Apple (NASDAQ: AAPL) smartphone LTE modem chip in 2016, replacing chips from Qualcomm (NASDAQ: QCOM).

Intel's chip in question is the new The 7360 LTE modem. All is not won, however, as the chip is said to be used inside a special version of the iPhone that will only be sold in emerging countries in Asia and Latin American. The chip is said capable of 450 megabits/second of download speed, support Cat9/10 LTE and 3X carrier aggregation.

Commenting on the news, RBC Capital analyst Doug Freedman said, "given that the report indicates that it is a regional win, we estimate that those regions could be 20-30% of AAPL’s total unit volume or 45-70mil units."

He added, "Though we assume that this "new Apple smartphone" detailed in the news report would be a flagship product and though we do not think the 7360 was designed for a lower-end smartphone, we do remind investors that AAPL previously segmented its smartphone product line with the iPhone 5C/5S."

Freedman said there is a small possibility that the discussed design win could be for a subset of AAPL's unit volume. "However, assuming it is 20-30% of AAPL’s total unit volume, we could conservatively estimate 45-70mil unit volume for INTC, assuming 230mil total units sold in 2016," he commented.

While existing thin modems could currently be selling for $18-$20, it would not surprise Freedman if future phones had ASPs between $10-$15. "Choosing the lower-end of this ASP range of $10, this could indicate a $450-$700mil revenue design win for INTC," he said. "We estimate that this could be 1-2% of the total baseband+apps processor industry revenues for 2016."

The analyst said they are not surprised by today's news given the prior relationship that Infineon’s modem business had with AAPL. "INTC’s roadmap continues to develop thin modems despite a small segment of the market using thin modems in flagship phones," he commented. "Even though a majority of the unit share is going to integrated modems, the dollar and profit pool still exists in thin modems given the scale of flagship phone such as AAPL."

Freedman also said the news is coming out at an opportune time for Intel given its PC business is weakening. "For the last year, INTC’s PC business has averaged $8.6bil a quarter," he commented. "Assuming two 5% declines to a new run-rate, that would also be ~$800mil, or about our estimate for the new modem business."

Shares of Intel are up 2.9%.

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