Is Intel’s Future Brighter after Modem Exit?



Intel was losing money in modem business

Intel (INTC) this month announced its intention to exit the smartphone modem business. That means that Intel has canceled its plans to launch 5G modems for smartphones in 2020. Intel’s announcement about exiting the smartphone modem business came shortly after Apple and Qualcomm (QCOM) resolved their differences, leading to Apple going back to Qualcomm as its supplier of modem chips. Apple dropped Qualcomm and switched to using modem chips from Intel exclusively in its latest iPhone products that entered the market last fall.

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According to Intel, it saw no clear path to profitability in the smartphone modem business, showing that the company views the exit from the modem business as eliminating a burden it had become uncomfortable shouldering. For Intel, exiting the smartphone modem business would not only allow it to make some operating cost savings but also allow the management to focus more on improving the company’s core personal computer and data center chip businesses.

Intel could reinvest cost-savings

Intel could use the cost savings from exiting the smartphone modem business to reinvest in strengthening its most promising businesses or delivering value to shareholders. Intel returned $2.3 billion to shareholders through share repurchases in the fourth quarter, which ended in December. Qualcomm and IBM (IBM) returned $1.0 billion and $2.0 billion to their investors through share repurchases in the December quarter, respectively. Broadcom (AVGO) repurchased $3.5 billion worth of its shares in its first quarter, which ended in February. Nvidia (NVDA) repurchased $1.6 billion of its shares in its fiscal 2019 full year, which ended in January.

Intel made a profit of $5.2 billion on revenue of $18.7 billion in the December quarter.


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