Intel exits the 5G smartphone modem market
The hot topic during Intel’s (INTC) first-quarter earnings event was its recent announcement of its exit from the 5G smartphone modem business, on which it had already spent a large sum. Intel bought its modem business from Infineon Technologies for $1.4 billion in 2011. According to the Wall Street Journal, the modem business brought it $1 billion in annual losses.
Apple (AAPL) had encouraged Intel to invest in modem technology by using its 4G modems in its iPhones since 2016. Apple used its arrangement with Intel to sue its sole modem chip supplier, Qualcomm (QCOM), for charging what it deemed to be an excessive licensing fee. The lawsuit resulted in Intel becoming Apple’s sole modem supplier by 2018, which saw Intel gain an 8% baseband processor market share.
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However, Intel had difficulty keeping the pace with Qualcomm, which launched its 5G modems in 2018—whereas Intel’s 5G modems aren’t likely to be ready before the end of 2019. In November 2018, there were rumors that Apple was looking for an alternate 5G modem supplier due to Intel’s delays.
Why did Intel give up on the 5G smartphone modem?
On Intel’s first-quarter earnings call, CEO Bob Swan stated that the Qualcomm-Apple licensing settlement on April 17 meant that Intel’s largest modem customer, Apple, would now be using its rival Qualcomm’s modems. With Apple’s business lost, there was no “clear path to profitability in 5G smartphone modems,” according to Swan. Hence, Intel exited this market, and it’s now assessing the 5G modem opportunity in the PC and Internet-of-Things spaces for profitability.
Supporting his statement, Swan said that in the last two years, Intel has exited several low-return businesses, including McAfee, Saffron, Wind River, and wearables. Streamlining its business has helped Intel reduce its operating expense ratio from ~36% in the first quarter of 2017 to ~30% in the first quarter of 2019. Swan stated that he plans to improve the company’s execution by focusing on fewer things “that matter most.”