Last Thursday, Apple and Intel confirmed that the iPhone maker would acquire Intel’s smartphone modem business in a deal valued at USD $1 billion. Back in April, Intel announced they would be exiting the smartphone modem unit due to the cost of supporting a single customer, which is Apple. The deal will give Apple 2,000 new employees and now a total holding of 17,000 wireless patents, the company said. The move likely stems from Apple’s realization that Intel’s exit would mean rival Qualcomm would be able to control too much of the company’s supply of a critical part necessary to start doubling down on the production of 5G-capable iPhones.
For the past year, Apple has exclusively been using Intel modems in the production of their iPhones. However, now that the longstanding royalties battle with Qualcomm has been settled (in a settlement agreement), Apple will transition back to Qualcomm’s 5G cellular modems for future versions in the iPhone product line. Qualcomm was the first to offer such technology at a mass scale and was on track to have its second-generation chip on the market when Intel suddenly released their own version first. Eventually, Apple would like to shed all third-party partners and bring modem production as an in-house operation, a desire that will likely be expedited by the deal with Intel.
Although Intel will be selling the modem unit to Apple, the company will still retain the rights to develop modems for non-smartphone applications, such as personal computers, internet-of-things (IoT) devices, and self-driving cars.
The deal is scheduled to close in the fourth quarter. And the deal isn’t surprising news. For the past couple of years Apple has been making move towards its own modem technology operation, evident through its establishment of development centers, including in San Diego, as a hotbed for modem development conveniently located in Qualcomm’s backyard.
The significance in the move is that it shows Apple is eager to join the race for 5G-enabled devices. In fact, Bloomberg reports that the settlement with Qualcomm helps Apple in part to be able to bring a 5G iPhone to the market by next year after Intel missed deadlines and features inferior performance, according to people familiar with the series of events, reported.
By planning to develop its own modems, Apple will not need to rely on a third-party designer for such a key part to 5G devices. Additionally, selling its own modems would follow the long-time Apple playbook, which is to design critical components internally. Apple already designs the main processors for its mobile devices and eventually plans to do the same for Mac computers. The company also built its own graphic engines, wireless chips and is currently exploring custom batteries and screens. The deal with Intel is similar to one struck by Apple to pay Dialog Semiconductor Plc. $600 million for its power management business, the provider of yet another key component for Apple’s devices.