Apple Inc. (NASDAQ:AAPL) is, according to rumors, developing its own baseband chip in order to wean itself off of wireless chips from third party manufacturers. The Cupertino-based company has brought much of its chip design inside its walled garden in recent years, so rumors of an Apple-branded chip are not surprising. They may, however, be damaging to the current supplier of the company’s wireless hardware.
A baseband chip manages all of the radio signals being received and transmitted by a device. In the case of the Apple Inc. (NASDAQ:AAPL) iPhone, the processor would have to contend with Wi-Fi, Bluetooth, cell signals and, if the rumors are true, NFC capabilities. There certainly are reasons for Apple to develop its own chips, but some analysts are calling the job a “Herculean task.”
Apple sets sights on vertical integration
Earlier this month it became apparent that Apple Inc. (NASDAQ:AAPL) was hunting for radio engineers from top wireless firms Qualcomm Inc. (NASDAQ:QCOM) and Broadcom Corporation (NASDAQ:BCOM). The only solution, according to the rumor mill, was the development of a baseband chip inside of Cupertino. Apple already manufactures its own iPhone GPU and CPU. The logical conclusion is, according to one thread of speculation, the completion of the internals with baseband development.
Apple Inc. (NASDAQ:AAPL) differentiates itself by vertical integration according to a Nomura report on Qualcomm Inc. (NASDAQ:QCOM). The report, which estimates that Apple accounts for 15-18% of Qualcomm sales, says that Apple might be able to save money and reduce power consumption by putting its own baseband chip in the iPhone. The company would also be able to restrict access to the technology, one of the key benefits of in-house design.
Those are two goals that Apple Inc. (NASDAQ:AAPL) is constantly trying to achieve, but there’s a reason that Qualcomm Inc. (NASDAQ:QCOM) offers the only truly viable option on the market today. Baseband chip development is difficult, and Apple would need to spend billions to come up with an alternative. Despite the company’s vast resources, that might not be the best use of its time and money.
Apple may customize Qualcomm offering
Though it seems unwise for Apple Inc. (NASDAQ:AAPL) to develop its own baseband chip, it may be a good decision for the company to customize the already available tech. According to the Nomura analysts, this could allow Apple to differentiate its devices from Android offerings while leaving Qualcomm Inc. (NASDAQ:QCOM) earnings intact.
If Apple Inc. (NASDAQ:AAPL) is heading toward the creation of its own baseband chip for the iPhone, Qualcomm Inc. (NASDAQ:QCOM) is going to lose a huge portion of its sales. The Nomura analysts aren’t pessimistic, however, given the length of time it is likely to take Apple to build such a component. The firm put a price target of $85 on the company’s shares and rate it a Buy.
