Featured Image Credit: Photo by mohamed_hassan
Apple has announced that it is buying Intel’s smartphone modem business, giving Apple the in-house capability to produce cellular modem chips for existing 4G and new 5G networks, among other benefits. The $1 billion deal transfers technology, patents, and 2200 employees from Intel to Apple.
Apple doesn’t disclose how many of its 132,000 employees work in its chip division, but based on industry reports and announcements over the last decade—one report said 1000 in 2011—it could easily be double that now. The chip designs and intellectual property are undoubtedly necessary, but hiring this many qualified people in highly specialized professions in one go is at least as important.
Apple and Qualcomm
Apple had increasingly turned to Intel for 4G chips during Apple’s multi-year dispute with Qualcomm over chip prices and intellectual property, first out of competition and then—as Apple alleged in a lawsuit—when Qualcomm wouldn’t supply them. But then Intel’s relatively new CEO abruptly announced in April 2019 that Intel would exit its 5G smartphone modem business, saying there was no path to profitability. The division reportedly lost $1 billion last year.
The next day, Apple and Qualcomm said they had settled all outstanding matters, Apple would pay Qualcomm an undisclosed amount of money, and the two companies had executed a 6-year deal for Qualcomm to provide chips with an option to extend it by another 2 years (see “Apple and Qualcomm Settle Patent Royalty Suits and Agree to Licensing,” 17 April 2019).
That deal surprised industry analysts and regulators alike. But Apple and Intel were reportedly in discussions about the smartphone modem business since mid-2018, when Intel’s new CEO took over, and Apple must have had months of settlement talks already with Qualcomm to make a deal public so quickly.
Making matters more complicated, in May 2019, US District Court Judge Lucy Koh ruled in a lawsuit by the FTC that Qualcomm’s licensing practices were illegal. Her ruling said Qualcomm couldn’t threaten to withhold chips while negotiating a deal in the future. Qualcomm denied it had engaged in that practice, although Apple accused it of exactly that in its own lawsuit. Qualcomm asked for a stay on the decision in the FTC matter, which Koh denied. Qualcomm then filed an appeal on 9 July 2019.
If the appeals court grants its immediate request, Qualcomm’s current deals remain in place. If the court denies Qualcomm’s request, even if it agrees to consider the appeal later, Qualcomm will be forced to change its negotiation practices immediately—but the Apple deal could remain in place since the companies resolved their issues privately. And the outcome of the appeal could be years away and produce even more changes.
To add even more complexity, Apple will likely use Intel 4G chips in the iPhone models due out this fall, despite those chips performing poorly in comparison to Qualcomm’s in 2017, when iPhones used a mix of Intel and Qualcomm cellular tech. Apple freezes hardware designs many months before shipment, and it’s implausible that Apple had time to redesign the new models around Qualcomm chips given the date of the agreement.
If the Intel 5G chips truly aren’t competitive, expect Apple to wait until it has tweaked performance to match or beat Qualcomm to switch. Apple has often been a generation behind other smartphones in adopting cellular data technology upgrades, choosing to focus on battery life and reliable performance ahead of a marketing bullet point on possible speed.
Apple and Intel
Intel’s exit is the latest in a two-decade-long collection of failures to produce industry-leading modem chips, wireless technology standards, and mobile CPUs. (Remember XScale, Atom, and WiMAX?) Intel acquired its modem chip business from Infineon in 2011 for $1.4 billion.
This deal shifts Apple toward the position it loves to be in: no longer dependent on other companies to set its own roadmap and agenda. While Apple had long pursued this direction in software, in 2008, it bought P.A. Semi, then a tiny firm with 150 employees that designed ARM-based CPUs, for $278 million. That acquisition led to Apple’s A-series chips that now power iPhones and iPads, and which many believe will be the computational brains behind at least some of Apple’s future Macs.
Apple also started using its own graphics chips in the iPhone 8, 8 Plus, and X. In addition, Tim Cook and crew committed to $600 million to license power-management chip designs from Dialog Semiconductor and shift 300 employees over to Apple.
5G networks can use a wider variety of frequencies than 3G and 4G networks, requiring complicated new chip designs and networks. The potential is for much higher rates of speed and better support for massive numbers of devices. (If your iPhone currently claims it’s using 5G, don’t believe it—that’s marketing hype and nonsense. Carriers did the same thing with 4G.)
Despite the acquisition, Intel will continue to develop modem chips for computers, Internet of Things devices, and other non-smartphone purposes. Those markets could add up to billions per year in sales as 5G connectivity spreads outside of smartphones and tablets.