This iPhone XR Apple Shortcoming Is Good News for Apple Supplier

Apple 's (NASDAQ: AAPL) flagship iPhone XS and iPhone XS Max share a lot of similarities with its lower – cost iPhone XR model. They all use the same screaming-fast A12 Bionic applications processors, including identical TrueDepth camera systems for Face ID and features like Animoji, and share the same rear-facing wide-angle cameras.

Teardown reports from iFixit also reveal that all three smartphones use the same Intel (NASDAQ: INTC) XMM 7560 LTE modem. Despite this fact, though, Apple markets the higher-end devices capable of gigabit LTE speeds, while the iPhone XR can only deliver "LTE Advanced" speeds.

Source image: Apple.

PC Magazine tested the devices and said that "[the] iPhone XS and XS Max XR in the past, which shows that XR downloads may be more expensive.

here's PC Magazine explanation for part of the performance disparity:

Both the XS / Max and the XR use the same modem, the new Intel XMM7560. But the XR is missing two of the XS / Max's branches, making it a 2×2 MIMO phone versus the XS / Max's 4×4 MIMO.

The difference does not just come down to 2×2 MIMO vs. 4×4 MIMO, however:

How about the cellular networks can not handle 4×4 MIMO? Some cell sites around the country still run on 2×2 MIMO, and you'd think that in those conditions, the phones would perform equally well. You'd be wrong. It turns out that the iPhone XS / Max get stronger performance than the XR, even when the network itself is 2×2 MIMO.

Let's look at what does it look like? Broadcom (NASDAQ: AVGO).

Apple tried to save money

Ahead of the launching of Apple's latest devices, the analyst Romit Shah of Nomura subsidiary Instinctive claim that for the device that we now know the iPhone XR, Apple would replace Broadcom's PAD filter chip with a cheaper alternative from Qorvo (NASDAQ: QRVO). That move, Shah said, "represents approximately $ 100 [million] in [bill of materials] cost savings for Apple and roughly $ 400 [million] returned headwind for Broadcom in 2H18. "

Broadcom CEO Hock Tan admitted to the company's Sept. 6 earnings call that because Apple had made it to the iPhone 8-series and iPhone X devices in the iPhone XR, this "[creates] an opportunity for a customer to get a better performance alternatives in selected SKUs. "(Indeed, PC Magazine said "[the] iPhone XR … looks a lot more like our results from last year's iPhone X test, which is also a 2×2 MIMO phone. ")

However, Tan did say that "every year we are going to have a 2019 smartphone generation" and that "we believe we're very well-developed to win back the platform."

Looking even further ahead, Tan asked that "with 5G on the horizon, we expect this rate of annual upgrades to sustain." ( Fast Company Apple is planning to launch 5G iPhones in 2020.

"And accordingly, we expect to see a double-digit growth in fiscal 2020, following a temporary dip in fiscal 2019," Tan said.

Why that could make sense for Apple

For iPhone, iPad, iPod, iPhone, iPad, iPod, iPhone, iPod, iPhone, iPod, iPhone XS Max (with retail prices that start at $ 999 and $ 1099, respectively). Clearly, management concluded that saving money on radio frequency chips was a good move for this generation of devices.

Apple is rumored to be keeping the factors unchanged for the 2019 models – which makes sense, considering how long it stays the same basic iPhone 6 and iPhone 6 Plus form factors around. The iPhone XR's casing is likely to become cheaper to produce over the next year, as will the display. (Apple is likely to reuse both in the next iPhone XR). Apple is going to have this year's iPhone XR, and have it replace the iPhone 8 and iPhone 8 Plus as its mid-range option next year.

So, between the need for cost-structure optimizations and the desire to differentiate next year's iPhone XR from the current one, it makes sense for Apple to give the next XR the same cellular capabilities and its higher-end counterparts – especially if the difference in Shah's estimate, only about $ 100 million.

One potential downside, though, is that it would eliminate a point of differentiation between the iPhone XR and the successors to the XS iPhone and iPhone XS Max. With those being said, those high-end models should still have OLED screens, stainless steel casings, and dual rear-facing camera systems, while the lower-priced models will not. Apple may even add more flags to its flagship smartphones to further encourage buyers to spring for the top-of-the-line options.

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Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $ 150 calls on Apple and short January 2020 $ 155 calls on Apple. The Motley Fool recommends Broadcom Ltd. The Motley Fool has a disclosure policy.