Intel has officially announced that Apple will be acquiring the bulk of its smartphone modem business, confirming several months of speculation and rumours that have been going around ever since Intel announced its surprise exit from 5G modems back in April.
Shortly after Intel’s announcement, the company began looking at ways to divest itself of its smartphone business, and after putting 8,500 of its wireless technology patents up for bids, we heard reports earlier this month that it had entered into exclusive talks with an unnamed buyer who was looking to purchase the large portfolio. While the identity of the buyer was being kept a closely-guarded secret, many speculated that it was Apple, due to the company’s obvious interest in developing its own 5G modem chips, not to mention that Apple had tried to court Intel last summer in an attempt to buy its smartphone modem chip business back then to jump-start its own efforts.
Apple Rises From the Ashes of Intel’s Defeat
While those earlier talks were said to have cooled, they also occurred at a time when Intel clearly thought it could still make a go of building 5G modems on its own. However, in the wake of Apple’s infamous detente with Qualcomm , Intel clearly realized it was time to throw in the towel.
However, Apple’s decision to “sue for peace” with Qualcomm was a necessary step if the company wanted to have a 5G iPhone ready for 2020. It had been struggling to get a 5G iPhone ready with Intel chips, and while it had begun ramping up efforts to create its own 5G modem chip, it takes a long time to build, test, and certify a modem chip, so there was no way that Apple was going to have something ready for next year.
There’s no doubt, however, that the fiercely independent iPhone maker has no desire to rely on Qualcomm in the longer term, and in fact even before Intel had put its block of patents on the market, it was already picking though Intel’s wreckage, acquiring talent in order to build its own 5G dream team as it continued reshuffling its organizational structure to put more resources behind its own 5G modem chip, moving teams from merely integrating third-party chips into actually designing its own.
So it arguably would have been more of a surprise had anybody but Apple acquired Intel’s 5G business. Qualcomm is already in enough hot water with the FTC for anticompetitive behaviour that it’s not about to make a move that would be seen as increasing its monopoly, and most other smartphone markers are happy enough relying on Qualcomm’s chips. Plus, there aren’t too many companies that can bring the kind of money to the table that Apple can.
So What’s The Deal?
According to Intel, Apple will not only acquire Intel’s portfolio of smartphone patents, but it’s also gaining 2,200 Intel employees in the process, along with other “intellectual property, equipment, and leases.” For this privilege, Apple will be paying Intel a mere $1 billion, which is actually only a third of what the iPhone maker paid for Beats back in 2014, and a relative drop in the bucket against $250 billion in cash that Apple currently has in reserve. By comparison, it cost Apple $4.5 billion just to settle with Qualcomm, so it’s safe to say that the company is getting a bargain here.
Notably, the move will bring its total patent chest to 17,000 wireless technology patents. This could actually leave it with a bigger patent portfolio than Qualcomm, which is estimated to have around 16,000 wireless patents, of which 6000 are active, according to an analysis by GreyB.
Although it looks like Apple is taking most of Intel’s 5G engineering resources as part of the deal, the chipmaker will still retain the option to build modem chips for non-smartphone applications, including PCs, IoT devices, and autonomous vehicles. Although that latter point is interesting in light of Apple’s own automotive ambitions, there doesn’t seem to be anything in the deal that would prevent Apple from also developing its own modem chips for the Apple Car.
What Does This Mean?
Apple’s goal here is pretty obvious. It’s been looking at acquiring Intel’s business to get a head start on its own modem chip design and engineering efforts for a while, and now for a mere $1 billion — or less than 0.5% of its cash on hand — Apple just gained a huge team of experienced engineering talent and a patent portfolio that at least rivals that of its arch-nemesis.
This definitely suggests that we’ll begin seeing first-party Apple 5G modem chips in the company’s iPhones sooner rather than later — some analysts have already said that could come as soon as 2021. Although Apple is somewhat locked into a six-year licensing deal with Qualcomm, that doesn’t mean that the company couldn’t start mixing its own chips into those which it’s purchasing from Qualcomm. There’s also likely an escape clause in the contract that in the very least would allow Apple to buy its way out, plus a chance that the FTC will force Qualcomm to renegotiate all of its terms anyway — something that we suspect Apple was secretly counting on when it signed the original deal.
In more practical terms, Apple’s own first-party chips are the reason why it’s able to produce groundbreaking mobile devices. Apple’s A-series CPUs give the iPhone a huge performance lead over rivals, and last year’s A12 chip could run circles around most desktop CPUs, while the H1 chip that powers AirPods and Powerbeats Pro offers advanced features that other wireless earbuds can only dream of.
So needless to say, with Apple’s track record in chip design, plus Intel’s wealth of resources behind it, we’re pretty excited about what Apple is going to do with its own 5G modem chip, likely offering not only unrivalled performance and power efficiency, but probably a few other tricks up their sleeves. Qualcomm should be very nervous right now — it’s very likely they’ve won a battle only to ultimately lose the war.