Despite reaching a settlement with longtime modem supplier Qualcomm, Apple clearly still has designs on its own internally developed modem chips.
SAN FRANCISCO — Apple will pay about $1 billion to acquire Intel’s smartphone modem business, signaling that, despite a settlement reached with longtime supplier Qualcomm in April, Apple still has designs on its own silicon for 5G.
Roughly 2,200 Intel employees will join Apple as a result of the deal, which is expected to close in the fourth quarter, the companies said. The combination of acquired patents and Apple’s own existing wireless technology patent portfolio will give Apple more than 17,000 wireless technology patents.
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The deal was announced on the same day that Intel raised its sales estimate for the year after reporting better-than-expected second quarter results.
Kevin Krewell, a principal analyst at Tirias Research, said Apple has long wanted to build its own modem to go along with its A Series processors and its internally developed GPU. "It makes perfect sense for Apple to buy that business from Intel to accelerate its internal development plans," Krewell said. "For Intel, it gets to recoup at least some fraction of the multi-billion dollar investment in the modem business."
The structure of the deal enables Intel to retain the option to develop modems for non-smartphone applications, such as PCs, IoT devices and autonomous vehicles.
Bob Swan, Intel's CEO, said in a conference call with analysts that 5G network infrastructure remains one of Intel's most important opportunities and areas of investment. Swan said the company expects to be in production early next year on its Snow Ridge, Intel's 10-nm SoC for 5G base stations. Swan said two large telecom equipment manufacturers have already committed to this architecture and that Intel is on track to reach 40% market share in this segment by 2022.
"This deal preserves Intel's access to critical IP we have developed," Swan said. "It enables us to focus on the more profitable 5G network opportunity where we are growing and winning share."
Intel announced in April that it would exit the smartphone modem business after Apple and Qualcomm reached a settlement in their high-profile dispute. The bad blood between Apple and Qualcomm had briefly given Intel an opportunity to supply modems for iPhones, but it is widely believed that Qualcomm’s lead in 5G technology forced Apple to the table to make a deal with Qualcomm or risk falling behind competitors in the all-important 5G handset race.
Intel has been shopping the modem business since the April announcement. Reports have circulated multiple times in the months since that Apple and Intel were engaged in talks over a possible acquisition on the business by Apple.
Part of the settlement agreement announced by Qualcomm and Apple in April included a multi-year chip supply agreement. While Apple is expected to buy Qualcomm 5G modem chipsets for iPhones coming next year, the company clearly still has designs on designing its own modems for integration with its A series processors.
Krewell said it will take Apple two to three years to be able to produce an integrated modem for its iPhones and iPads. "This is an investment for the future," he said.
Meanwhile, Intel raised its sales target for the year to $69.5 billion, from $69 billion, on the strength of better-than-expected second-quarter sales, which exceeded the company’s guided range by $900 million.
Sales for the quarter totaled $16.5 billion, down 3% compared to the same period of 2018. Intel reported a profit for the quarter of $4.2 billion, down 17% from the year-ago quarter.