Intel finally sells its modem business to Apple
Chipmaker Intel (INTC) has agreed to sell its smartphone chip business to Apple (AAPL). Intel will sell the majority of its modem business for a value of $1 billion. Apple will also be acquiring approximately 2,200 Intel employees, along with intellectual property, equipment, and leases. However, Intel will retain some of the business to develop 4G and 5G modems. Intel will now focus on other applications, such as personal computers, internet-of-things devices, smart home devices, and autonomous vehicles.
With this deal, Intel will completely exit from the smartphone business. The agreement is yet to get approval from regulators. The companies are anticipating closing it in the fourth quarter of 2019. Intel stock was down 1.44% yesterday but gained about 5.06% in after-hours trading on July 25. The chipmaker also topped estimates on both earnings and revenues in Q2 results released yesterday after the market bell. The company also gave upbeat guidance for the third quarter.
Intel to focus on 5G infrastructure business
Intel announced it would sell its 5G smartphone market in April. The decision also meant that the company would not supply 5G modem products for Apple’s future iPhones. However, Intel will continue to meet the ongoing commitments for its existing 4G smartphone modem product line. Intel will now focus on the broader 5G infrastructure business.
In an Apple report, Swan further stated, “This agreement enables us to focus on developing technology for the 5G network while retaining critical intellectual property and modem technology that our team has created.”
According to the company’s CEO Robert Swan, Intel could not see any progress and profitability in the smartphone market. Intel also believes that the margins in the device market are lower in comparison to the data center business.
Moreover, Intel’s primary client, Apple, was suffering from waning iPhone sales. Apple’s iPhone sales declined around 17.4% year-over-year in the March ending quarter due to a massive drop in the shipments and lack of demand.
Intel’s sale of its chips business also came after Apple settled its patent and royalty dispute with Qualcomm (QCOM), which dominates the 5G chips market. Apple then agreed on a multiyear chip supply agreement and a six-year licensing deal with Qualcomm. The renewed agreement means that Apple could use Qualcomm’s 5G modems for its future 5G iPhones, expected to launch in 2020.
The deal could benefit Apple
The acquisition of Intel’s smartphone chip business was crucial for Apple and could generate operational efficiency by reducing costs. Apple would have more control over the chips and would be able to build its iPhone as well as other devices such as iPad and Apple Watch.
Last year, Apple had replaced Qualcomm with Intel to get modem chips for its iPhones. Apple had used Intel’s modems for its smartphones such as iPhone XS model. At that time, Apple was facing a legal dispute with Qualcomm. But with the settlement of the lawsuit, Apple could also use Qualcomm’s modems and its 5G components in its 5G smartphones next year.
However, the hardware company wanted to reduce its dependability on buying chips and other parts from Qualcomm or other chipmakers. Meanwhile, Apple was also looking to build its own modems for its devices like the iPhone, iPad, and Apple Watch. The purchase of Intel’s modem chip business would, therefore, help Apple to develop its new devices to connect to the mobile internet.
5G smartphone launches
Apple is planning to launch two 5G iPhones, a 6.7-inch and 5.4-inch model, in 2020. Like Apple, many tech giants are planning to capture the market by launching their 5G smartphones, as 5G technology is the future of mobile networks.
According to reports, there are three smartphones with 5G services in the market. South Korea-based electronics giant Samsung (SSNLF) has already shipped Galaxy S10 5G and is working to release another 5G phone this year. Another Korean handset maker, LG, has also launched its 5G smartphone called LG V50 ThinQ 5G. Motorola has also released its 5G phone Moto Z3 with Moto 5G Mod. China’s smartphone makers including OnePlus, Huawei, Xiaomi, and ZTE, are also progressing to launch 5G phones this year.