Apple iPhone modem supplier Intel cites weak demand in Q4 earnings miss

Posted:
in General Discussion
Slowing iPhone sales have seemingly impacted another major tech industry player, as Intel on Thursday blamed lower-than-expected revenue for the fourth quarter of 2018 in part on weak modem demand.

Intel Modem
Intel 5G modem.


Outlined in an earnings presentation (PDF link), Intel reported revenue of $18.7 billion for the quarter ending in December. The figure is below analyst expectations of approximately $19.01 billion, as compiled by Refinitiv.

Intel blamed the revenue shortfall on "weaker modem demand, slowdown in China, cloud customers absorbing capacity, and weakening NAND environment."

During a conference call on Thursday, Intel CFO and interim CEO Bob Swan said revenue from modem sales was well below expectations due to slow smartphone demand, reports CNBC. Specifically, modem revenue was around $200 million less than anticipated.

A large chunk of Intel's modem revenue is derived from iPhone. With Qualcomm out of the loop due to a legal struggle over patents and licensing, Apple relies solely on Intel to provide modems for iPhone XS, XS Max and XR models. When Apple and its flagship iPhone products suffer, so do partner suppliers.

Apple in January cut revenue guidance for its first fiscal quarter of 2019 on the back of lower than expected iPhone sales. In particular, sluggish sales in China and other burgeoning markets greatly impacted overall results.

Whispers of an unexpected dip in iPhone demand began to circulate late last year when partner manufacturers heavily reliant on Apple's business announced adjustments of their own. AMS, Japan Display, Lumentum, Qorvo and others reduced earnings forecasts prior to Apple's announcement. More recently, A-series chip producer TSMC slashed guidance on the back of sluggish iPhone sales and a contraction of the wider smartphone market, while Japanese parts supplier Nidec did the same.

Intel is expected to continue in its position as Apple's main modem supplier for at least another year, though the iPhone maker might be forced to turn to Qualcomm for its 5G communications needs.

Intel is forecasting flat year-on-year sales of $16 billion for the coming first quarter of 2019. The company's stock price dipped 8 percent in aftermarket trading on Thursday.

Comments

  • Reply 1 of 8
    Looking forward to AMD's earnings report on the 29th. That will shed all sorts of light on Intel's misses.
  • Reply 2 of 8
    Intel can't find their own chip fab with both hands, they have missed on 10nm process for how many years now?  With other vendors turning out 7nm routinely?

    I seriously doubt any sales weakness on the part of Apple is having ANY effect on Intel's bottom line. Ineptness on delivering on their core business goals, maybe.


    watto_cobra
  • Reply 3 of 8
    wood1208wood1208 Posts: 2,012member
    Intel don't miss earnings estimate because decreased order of cell modem chips. It reflects worldwide demand for overall semiconductor chips decreased in last quarter than anticipated.
    watto_cobra
  • Reply 4 of 8
    Intel's modem revenue was $200M less than anticipated.  Now the question is what percentage of this modem business does Apple have?  The Verge reported "Apple also revealed the price it’s been paying for Qualcomm modems: $7.50 per device, says Williams. That’s apparently five times more than what Apple wanted to pay — just $1.50 per device. Still, Williams said, “We needed their chip supply. If we tried to pursue them legally, we wouldn’t have access to the chips. We didn’t have a lot of options.”

    So let's take a wild guess.  Let's guess that Apple represents 35% of Intel's modem business.  So $70M of the $200M shortfall is associated with Apple.  Then let's guess that Apple is paying $6.50 for each modem (because Intel probably knows Qualcomm wouldn't sell to them).  That would mean that Apple shipped $70M/$6.50 per modem/iPhone = 10.77M less iPhones than it was planning to.  10.77M iPhones at an average ASP of $800 = $8.6B shortfall which is in line with Apple's updated guidance.

    Any other better guesses out there?

    I worked at Intel almost two decades ago as a Modem Product Manager for PCMCIA cards.  Anyone remember those???  I am long on Apple shares and hoping this is a temporary blip on the radar screen...
    watto_cobra
  • Reply 5 of 8
    WonkiWonki Posts: 2unconfirmed, member
    Intel's modem revenue was $200M less than anticipated.  Now the question is what percentage of this modem business does Apple have?  The Verge reported "Apple also revealed the price it’s been paying for Qualcomm modems: $7.50 per device, says Williams. That’s apparently five times more than what Apple wanted to pay — just $1.50 per device. Still, Williams said, “We needed their chip supply. If we tried to pursue them legally, we wouldn’t have access to the chips. We didn’t have a lot of options.”

    So let's take a wild guess.  Let's guess that Apple represents 35% of Intel's modem business.  So $70M of the $200M shortfall is associated with Apple.  Then let's guess that Apple is paying $6.50 for each modem (because Intel probably knows Qualcomm wouldn't sell to them).  That would mean that Apple shipped $70M/$6.50 per modem/iPhone = 10.77M less iPhones than it was planning to.  10.77M iPhones at an average ASP of $800 = $8.6B shortfall which is in line with Apple's updated guidance.

    Any other better guesses out there?

    I worked at Intel almost two decades ago as a Modem Product Manager for PCMCIA cards.  Anyone remember those???  I am long on Apple shares and hoping this is a temporary blip on the radar screen...
    First of all, apple is intel modem's only customer. Secondly. $6.5 is for royalty fee only, the chip itself is about $30
    I assume intel chip is cheaper, lets say $20, 200M/20= 10M
  • Reply 6 of 8
    “First of all, apple is intel modem's only customer.“

    That makes the calcs much more simple!  LOL!
    watto_cobra
  • Reply 7 of 8
    dysamoriadysamoria Posts: 2,285member
    “Weak demand”. Ha. More like overzealous expectations and foolish demands of Wall Street types for share prices and the unsustainable pursuit of perpetual profit growth.

    Looks like the “AAA” video game industry: “We expected $20 million in profits, but only got $18 million in profits. The game is a failure.”
    watto_cobra
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