Apple buys majoriy of Intel modem business in a deal valued at $1 billion
Apple Inc took a big step towards providing its own smart phone chips by buying most of the Intel Corp modem businesses in a $ 1 billion deal, the companies said Thursday.
Under the agreement, some 2,200 Intel employees will join Apple, along with intellectual property, equipment and leases. Combined with its existing portfolio, Apple will have 17,000 wireless technology patents, ranging from cellular communication standards to modems, which makes it a more powerful player in the global licensing talks that are likely to take place among the top holders of 5G patents, such as Huawei Technologies Co Ltd.
Intel shares rose 5.7 percent to $ 55.05 after the news and the company's report that its earnings exceeded analyst expectations. Apple shares rose 0.1 percent to $ 207.29.
After the agreement, Intel will reserve the right to develop modems for applications other than smartphones, such as personal computers, industrial equipment and self-driving cars.
Modem chips connect devices such as the iPhone to wireless data networks, but Apple has always relied on external vendors for the part. Intel has positioned itself as the only source of modem chips for iPhone over the past year after Apple faced a long-standing legal fight with former Qualcomm Inc. provider for Qualcomm patent licensing practices.
Apple, based in Cupertino, California, reached a surprise agreement in April that asked the iPhone to use Qualcomm modem chips again. Within hours, Intel said it would abandon the modem business for smartphones.
Apple's agreement with Intel will reinforce Apple's goal of making its own modem chip. Two of Apple's biggest global rivals, Samsung Electronics Co Ltd and Huawei, already have the ability to self-supply modem chips.
The Information news publication The Information last year reported on Apple's efforts to develop its own modem, but the iPhone manufacturer has never formally recognized it. In February, Reuters reported that Apple moved its modern engineering efforts to the same chip design unit that manufactures custom processors for its devices, indicating a duplication in the search for a modem chip of its own design.
Apple's chief executive, Tim Cook, has also said for a long time that the company wants to control its own technological destiny, what analysts have called the "Cook Doctrine."
"We believe we need to own and control the main technologies behind the products we manufacture," Tim Cook told investors in 2009.
The purchase of Intel assets could help Apple meet its aggressive timeline to produce a modem.
A person familiar with the issue said that Apple plans to use Qualcomm modem technology for an iPhone 5G in 2020, but wants to have an internally developed 5G modem technology ready for use in some of its products by 2021.
But any replacement of Qualcomm is likely to occur in phases, this person said, as Apple increases its capacity to ensure that its modems work in all networks and countries where Apple sells phones. Ensuring global compatibility is Qualcomm's historical strength, and Apple may still have to rely on Qualcomm for some modems during a period of transition to its own devices.
"There is a strong desire (in Apple) to have independence, but they also realize that it must be done in a responsible manner," said this person.
Apple's licensing agreement with Qualcomm lasts six years and the accompanying chip supply agreement could also last so long, said a chip industry veteran who requested anonymity to discuss confidential matters. Apple is likely to continue using the San Diego company chips in its flagship models, even if it incorporates its own silicon for lower-end and older models, this person said.
Apple is committed to Global Unichip Corp, a chip design company in which Apple Taiwan Semiconductor Manufacturing Co is an investor, to explore a modem design, but work is in its early stages.
"Clearly, Apple saw the letter on the wall, because they came and made a deal with Qualcomm," said this person.
Apple declined to comment on their plans, and Qualcomm and Global Unichip did not immediately respond to a request for comment.
A person familiar with the issue said that Apple plans to use Qualcomm modem technology for an iPhone 5G in 2020, but wants to have an internally developed 5G modem technology ready for use in some of its products by 2021.
But any replacement of Qualcomm is likely to occur in phases, this person said, as Apple increases its capacity to ensure that its modems work in all networks and countries where Apple sells phones. Ensuring global compatibility is Qualcomm's historical strength, and Apple may still have to rely on Qualcomm for some modems during a period of transition to its own devices.
"There is a strong desire (in Apple) to have independence, but they also realize that it must be done in a responsible manner," said this person.
Apple's licensing agreement with Qualcomm lasts six years and the accompanying chip supply agreement could also last so long, said a chip industry veteran who requested anonymity to discuss confidential matters. Apple is likely to continue using the San Diego company chips in its flagship models, even if it incorporates its own silicon for lower-end and older models, this person said.
Apple is committed to Global Unichip Corp, a chip design company in which Apple Taiwan Semiconductor Manufacturing Co is an investor, to explore a modem design, but work is in its early stages.
"Clearly, Apple saw the letter on the wall, because they came and made a deal with Qualcomm," said this person.
Apple declined to comment on their plans, and Qualcomm and Global Unichip did not immediately respond to a request for comment.
Patents such as leverage
The most valuable aspect of the Intel agreement for Apple could prove to be patented. To sell a 5G iPhone, Apple must reach agreements with the main 5G patent holders, including Nokia, Ericsson, Huawei and Qualcomm. Apple signed a licensing agreement with Qualcomm, but has not disclosed whether it has current agreements with others.
Erick Robinson, a patent attorney who had worked in Qualcomm's licensing division in Asia, said patents could give Apple greater leverage in licensing talks.
"I don't think Intel has the portfolio that Qualcomm has, but they certainly have a large enough to impact valuations when it comes to a cross-licensing agreement," he said. "It will save (Apple) a large part of the change in cross-licensing agreements."
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