Here’s Why Apple Quickly Bought Intel’s Mobile Modem Business At Discounted Price Of $1 Billion

Intel and Apple have inked a rather big sale. Apple Inc. will purchase Intel’s smartphone modem business. The final sale price is reportedly $1 Billion. Although the cost price may seem a little high, Intel and Apple both have a lot to gain from the sale. The deal is of course subjected to regulatory approvals and a variety of customary conditions. However, both the companies are confident the deal may finalize as soon as the fourth quarter of 2019.

Apple Inc. is eagerly awaiting the takeover of Intel Inc.’s smartphone modem business. The deal valued at a billion dollars includes several components like Intellectual Properties (IP), hardware equipment, leases, and even roughly 2,200 Intel employees. It is quite evident that Apple’s primary intention behind acquiring the specific Intel’s unit is to ensure a steady and reliable supply of modems and chips for its smartphone lineup which includes all the existent popular iPhone models and even upcoming devices. However, there are several interesting variables at play which Apple has attempted to mitigate in the highly competitive market.

What Will Apple Inc. Get From Intel For A Billion Dollars?

As part of the deal, Apple Inc. will get control of most of the key components that Intel had managed to amass over the years to kickstart and maintain a formidable smartphone modem business. These include intellectual property, equipment, and leases. When clubbed with its existing portfolio, Apple will have 17,000 wireless technology patents. While the sheer amount of IP now under Apple’s control is astounding, it is also the wide range of important areas. Apple now effectively holds technology patents ranging from cellular communication standards to modems. Simply put, Apple Inc. will effectively become a formidable mobile and wireless player. This could also allow Apple to have a strong say in the global licensing talks that will likely take place between major 5G patent holders such as Huawei Technologies Co Ltd., Nokia, etc.

Incidentally, a smartphone modem is not to be confused with a mobile CPU. A mobile System on a Chip or SoC is the brains of a smartphone. It holds the actual CPU, GPU, and controls the RAM, onboard storage, display, sound and most other aspects that define a smartphone. On the other hand, a modem is exclusively responsible for establishing and reliably maintaining all wireless communication including 4G, upcoming 5G, and Wi-Fi. Although Apple designs its CPUs for its iPhones and other devices, it has always relied on outside suppliers for smartphone modems.

In the past, Apple had attempted to work with Qualcomm for smartphone modems. Qualcomm has been a long time and established player in the modem business. It competes with a few Chinese companies like Huawei, the Finnish company Nokia, and Korean company Samsung Electronics Co Ltd. for wireless networking and mobile communications business across the world.

Intel, on the other hand, was a relatively new player in the field. In fact, Intel’s biggest push to establish a smartphone modems department began just last year. The company had announced a wholly-owned subsidiary with a 1000+ employee count. The division was to develop 5G modems. Incidentally, 5G was very much nascent and still under active deliberations next-generation mobile communications and high-speed wireless data transmission standard. The division quickly scaled up and appeared to do well. However, there were several limitations to the growth, and given the fact that Apple was already in active collaboration with Qualcomm made matters even more complicated.

Why Apple Managed To Acquire Intel’s Smartphone Modem Business For A Discounted Price Of $1 Billion

It is interesting to note that Intel’s smartphone modem business, a rather small subsidiary in comparison to the other business segments, had only one major customer. Apple Inc. was Intel’s biggest and most significant modem customer. However, the company never bet big on Intel’s mobile modem business. It was also working closely with Qualcomm. In fact, Apple still has a modem supply and licensing agreement with Qualcomm. Moreover, Apple has just settled an expensive lawsuit with the company. With the settlement, Apple essentially ensured its iPhones will have Qualcomm modem chips.

This essentially means Apple will undoubtedly keep working with Qualcomm, at least for the foreseeable future. It also means Intel’s mobile modem business never truly had nor it would have had an assured large and long-term customer. There’s little doubt about Intel’s capabilities. However, the pace of progress was quite slow for the company, while the market is already on the deployment phase. Until recently, Intel was competing with Qualcomm just to satisfy its sole customer. When Apple retained its agreement with Qualcomm, Intel had virtually no option.

Incidentally, Apple is still reportedly working with Taiwan’s Global Unichip Corp. The company appears to be working on an integrated chip design. Moreover, Apple already works with another Taiwanese company TSMC. In short, while Apple has several options on the table, and a few reliable suppliers, Intel had only one buyer. This may have severely impacted Intel’s bargaining power and allowed Apple to set a rather low price.

It is important to note that Intel still controls all its CPU business. It also owns all the other silicon chip design development and manufacturing, including modems for non-smartphone applications, such as PCs, industrial equipment and self-driving cars. In essence, Apple has only acquired the mobile modem business, leaving all other equally important segments. Still, at $1 Billion, the Intel deal is Apple’s second-largest ever. The only other and larger acquisition was of Beats Electronics in 2014 for $3.2 Billion.

What Does Apple Gain From Intel’s Smartphone Modem Business:

As mentioned above, Apple never truly had an in-house development mobile modem department. This forced the company to rely on other companies for a crucial component that’s mandatory in every smartphone, or in Apple’s case, every iPhone. Interestingly, Apple has always wanted to build its modems for a very long time. Apple owns the operating system and it owns the SoC. Hence, a self-developed and exclusively owned smartphone modem should be an obvious choice.

Apple’s entire SoC business is based on accurate predictions about integration, miniaturization, and cost optimization. Moreover, Qualcomm already integrates its modems into its Snapdragon SoCs. Apple has always preferred to have such critical components developed within its premises, and Qualcomm’s implementation proves that all major communication standards can be assimilated within a single modem that is an integral component of the SoC.

Although Apple never formally acknowledged the same, it did attempt to infuse mobile modems within its primary SoC last year. The move became apparent when the company moved its modem engineering efforts into the same chip design unit that makes the custom processors for its devices.  However, it is quite apparent that Apple may not have been successful.

Experts indicate Apple was nowhere close to successfully developing and integrating a mobile modem, especially for 5G, within its own SoC. Assuming Apple’s current pace of development, the company could require at least the next 5 to 10 years to build a modem business of its own. However, with Intel’s mobile modem business, Apple will most likely require 3 to 5 years at the most, to develop an SoC with integrated 5G modem chip. In the immediate future, Apple could ensure its iPhones are shipped with reliable 5G modems that work alongside its own SoCs.

Interestingly, alongside significantly shortening the development of its next-generation smartphone modems with 5G, Apple could also significantly benefit from the vast collection of critical patents that define several components of mobile and wireless communication. To sell an Apple iPhone with 5G modem, the company would have to strike deals with the major holders of 5G patents, including Nokia, Ericsson, Huawei, and Qualcomm. Although Apple does have an agreement with Qualcomm, there’s no confirmation about deals with other major stakeholders of 5G mobile communication standards. Along with its own IP, the Intel’s considerable stack of relevant patents would give Apple much better leverage in licensing talks. Incidentally, even after the acquisition of Intel’s patents, Apple is nowhere close to Qualcomm or other players. However, Apple could strike deals at significantly reduced prices. In essence, Apple now has a much bigger bargaining chip with Intel’s mobile modem business.

In the end, it is quite likely that Apple will slowly but surely ensure all critical and perhaps even ancillary components within its iPhones are designed and developed in-house. It could start by implementing the in-house comprehensive SoC with integrated 5G modem within its lower-end and older models, and eventually replace all Qualcomm chips with its own.

Alap Naik Desai
A B.Tech Plastics (UDCT) and a Windows enthusiast. Optimizing the OS, exploring software, searching and deploying solutions to strange and weird issues is Alap's main interest.

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Here’s Why Apple Quickly Bought Intel’s Mobile Modem Business At Discounted Price Of $1 Billion

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