Apple Reportedly in Advance Talks to Buy Intel’s Modem Division

 

Intel may be getting out of the modem business soon if reports are any indication. Just under nine years ago, the semiconductor giant reached a deal with Infineon to buy its modem business and expand into that market. Now, rumors suggest Intel may sell the unit to Apple.

This isn’t the first time we’ve heard rumors of an Apple-Intel deal. The Wall Street Journal reports that the deal could be valued at “$1 billion or more” when patents and staff are both taken into account. That’s not very much, relatively speaking. When Intel bought the business unit off Infineon, it paid $1.4B.

At the time, the Infineon purchase was thought to be essential to Intel’s plans for its Atom CPU and that processor’s eventual introduction to mobile phones. Obviously, those plans didn’t come to fruition. But in the aftermath of its Atom defeat, Intel kept the mobile business and pivoted to 5G — until it wasn’t able to deliver on whatever deal it had initially signed with Apple.

According to the WSJ, Intel has had little luck finding either customers or buyers for its mobile division. Apple, meanwhile, may have signed an agreement with Qualcomm to buy modems for the next few years, but it’s been interested in taking control of its own destiny for even longer. Chipzilla has reportedly lost a billion dollars a year on its modem business, and getting the drain off the books has been an issue the new CEO, Bob Swan, has wanted to deal with.

A deal between the two companies could be announced as early as next week. Apple has been bringing silicon in-house for years, increasing the proportion of the iPhone that it designs and can, therefore, capture in terms of profits. There’s no arguing that the strategy has worked for the company as far as CPUsSEEAMAZON_ET_135 See Amazon ET commerce and GPUs are concerned; Apple’s products have often occupied leadership positions in both single-threaded performance and overall GPU performance, though this obviously can vary from year to year depending on the particulars of each design. There’s also no arguing that 5G modems need major improvements — the first-generation smartphones currently available can’t use 5G if the ambient air temperature outside is above 85F/29C. And range isn’t exactly a strong suit.

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5G speed graphed against distance from site depending on intervening objects. Credit: Sascha Segan/PCMag

At the same time, however, new modem technology seems unlikely to fix what ails Apple. The problem isn’t with the company’s modems, but with its design decisions around the iPhone. As the smartphone market matures and sales slump, Apple has doubled down on building hyper-expensive devices. Customers, in turn, have decided to buy fewer iPhones and to prioritize the budget model. The iPhone XR is the most popular device by a wide margin according to Consumer Intelligence Research Partners (CIRP), while Kantar Research reports that Android appears to have picked up 0.6 percent market share at Apple’s expense in the most recent quarter. The iPhone 5c/5s purchasing pattern, in which consumers ignored the budget model and bought the high-end device, has not repeated.

This kind of variation doesn’t mean much, in and of itself. But Apple’s iPhone sales have been trending slightly downwards and the company’s moves to boost service revenue and increase iPhone prices have been read as a direct response to that trend. The buzz around the upcoming iPhone family, however, has been distinctly negative — more negative than I recall ever seeing before at this point in the product cycle.

Whether this reflects how the actual product will land is unknown, but we do know Apple didn’t make its own production targets for the iPhone X. Last month, reports surfaced that Apple may owe Samsung a $90M penalty fee after failing to sell enough iPhone X, XS, and XS Max to justify the investment Samsung Display made into an OLED factory exclusively for Apple screens. $90M is chump change to Apple, with its $113B in cash, but it’s still not the direction the company wants to move in. Buying its own 5G modem technology may not be enough to change that.

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