Apple and Intel jointly announced that Apple is buying Intel's smartphone modem business for $1 billion. About 2,200 Intel employees will join Apple, along with intellectual property, equipment and leases. The deal, which should close in the fourth quarter, likely gives Apple access to Intel's work on 5G technology.
Intel on Thursday declined to specify what patents are covered in the deal, but it's unlikely that Apple would agree to a deal for only older technology. Apple's current iPhones -- the iPhone XS, XS Max and XR -- use Intel modems, while older iPhones use 4G chips from Qualcomm. Apple's first 5G phone .
Apple has been expanding in the components market as it seeks to own all of the hardware and software in its devices. By building its own chips, Apple is able to better control the features it releases, as well as manage the timeline for introducing new devices. Buying Intel's technology gives it a key piece of the puzzle it doesn't control -- the modem that taps into cellular networks.
Importantly, getting access to Intel's 5G technology could help Apple jumpstart efforts to make chips that connect its phones to the new, super-fast 5G wireless network. Intel had problems making a 5G chip for Apple's iPhones, and it exited that business after Apple and Qualcomm reached a multiyear chip supply agreement in April. But it still owns important patents that could benefit Apple. While Intel's technology won't help launch a 5G iPhone this year, it could speed up Apple's in-house development efforts.
"This would be a clear 'doubling down' on 5G, which remains at the centerpiece of the company's smartphone future with these chip assets giving Apple further control over its supply chain and core chip design," Wedbush analyst Daniel Ives noted.
Apple's chip efforts
Over the past decade, Apple has increasingly heightened its focus on the components that make its devices run. The company designs its own graphics chips, that quickly link its AirPods to its iPhones, and security chips that protect personal data and biometrics from hacking attempts.that act as the brains of its mobile devices,
Late last year, Apple reached a deal to buy part of Dialog Semiconductor for $600 million, giving it access to power management chips that are important for making sure an iPhone charges correctly and doesn't consume too much energy.
Apple also has been working on processors to replace Intel's chips in Mac computers as soon as 2020. Should this happen, the Mac computer line would have a similar processor strategy to the iPhone and iPad, which already use Apple-produced chips.
There are only two major components that Apple doesn't control in-house: memory and modems. There are multiple companies capable of selling Apple memory chips, including Samsung and Micron, but the field is more limited when it comes to modems. That's especially the case with 5G, where Qualcomm is essentially the only modem supplier right now.
Apple doesn't like to rely on one company for a key component, even though it's done so in the past. The iPhone 6S and 6S Plus in 2015. The following year, Apple started using Intel modems in some models of the iPhone 7 and 7 Plus, but it still used Qualcomm in versions for Verizon and Sprint until its most recent batch of iPhones. Because of litigation between Qualcomm and Apple, last year's iPhone only used Intel.used modems from Germany-based Infineon. Intel acquired that business in 2011, but Apple solely used Qualcomm 3G and 4G chips from the iPhone 4S in 2011 to the
Apple has been working on its own modems, but they reportedly won't be ready until about 2025. In the meantime, Apple still has to rely on Qualcomm.
Qualcomm, with which Apple battled over licensing before reaching a settlement in April, is the world's biggest mobile chipmaker and the lone option today for 5G handsets aimed at the US. Globally, Qualcomm only has three chip rivals: Taiwan-based MediaTek, China-based Huawei and South Korea-based Samsung. Out of those three, only . Huawei and Samsung largely use their modems for their own phones. But MediaTek's modems are first aimed at Chinese handsets.
As part of Apple and Qualcomm's legal settlement, Apple agreed to buy Qualcomm chips for "multiple" years. The two companies haven't said how long the contract will last.
"In general we have been impressed over the years by [Apple's] homegrown semiconductor efforts," Bernstein analyst Stacy Rasgon noted. "In any event, it demonstrates (as is known) that [Apple] overall does not like to be single-sourced, and that even 'multi-year' supply agreements with them may have little or no terminal value."
Racing to 5G
5G is touted as a game-changing technology, with the ability to dramatically boost the speed and coverage of wireless networks. It can run between 10 and 100 times faster than your typical 4G cellular connection today, and is poised to change our lives in the coming years.
Essentially every major Android handset maker will launch a 5G phone this year, but Apple won't have a 5G iPhone until 2020 at the earliest. It's relying on Qualcomm to supply the modem for that device, but their development efforts got started later than usual because of their legal battles. Having a this year isn't essential. (The .) But not having one by late next year could be devastating to Apple's phone business.
Because Qualcomm is the lone 5G modem supplier, its chips don't come cheap. And while it tweaks its modems for Apple's devices, it's not the same as Apple actually controlling the development from start to finish.
Getting access to Intel's modem business doesn't mean Apple can build its own 5G chips this year or probably even two years down the road. Modems are complicated and constantly being updated to take advantage of higher speeds and other features. But it could help Apple release an iPhone with its own 5G chips faster than that 2025 timeframe that was rumored.
It also could help Apple explore putting 5G in other devices or even creating entirely new products that tap into the super-fast network.
Once Apple can build its own 5G modem, it'll be able to integrate them on the same chip as the application processor. Doing so lets the chips take up less space in the phone, leaving more room for bigger batteries or letting the device be sleeker. And integrating the application processor and modem together also lowers power consumption and brings down the cost of handsets.
Qualcomm's Snapdragon lineup integrates its application processor with its modem, and that's the chip most Android handset makers use in their high-end flagship devices. In February, Qualcomm said its next Snapdragon chip will integrate its 5G modem with the brains of a device. Samsung has already said it'll use that chip in future Galaxy S devices, possibly including the Galaxy S11 in early 2020.
Because Apple makes its own application processor but not its own modem, its devices don't have integrated chipsets. Just imagine an iPhone with even better battery life and 5G.
If it ends up buying Intel's smartphone modem business, that could be a reality.
Originally published July 23
Update July 25 Adds confirmation of the deal.