Intel says it will exit 5G phone modems just hours after Apple, Qualcomm settle

Guess we know why Apple and Qualcomm reached a settlement agreement in their licensing dispute.

Intel's 5G modem was aimed for iPhones in 2020.

Intel will no longer be working on 5G chips for phones, leaving Apple with only one supplier for its iPhones, Qualcomm -- the same company that it was battling in court until midday Tuesday.

Intel late Tuesday said it plans to cease working on modems for 5G, the next-generation of wireless technology expected to supercharge your mobile connection. It had been working on a processor for Apple, with the chip expected to be in iPhones in 2020. Lately there have been worries the chip wouldn't be ready until iPhones released in 2021.

"The company will continue to meet current customer commitments for its existing 4G smartphone modem product line, but does not expect to launch 5G modem products in the smartphone space, including those originally planned for launches in 2020," Intel said in a press release. Its only customer in modems is Apple.

Now playing: Watch this: We tested Verizon's new 5G network

The announcement follows news from earlier Tuesday that Apple and Qualcomm had reached a settlement in their battling over licensing royalties. The two sides announced the surprise agreement through a joint press release Tuesday at the same time lawyers presented opening arguments in a courthouse in Southern California. Apple and its contract manufacturers had given their statements, and Qualcomm's head lawyer had nearly finished his remarks when the courtroom buzzed with the unexpected news.

In a statement, Intel added that it will "complete an assessment of the opportunities for 4G and 5G modems in PCs, internet of things devices and other data-centric devices." It also said it will "continue to invest in its 5G network infrastructure business."

"We are very excited about the opportunity in 5G and the 'cloudification' of the network, but in the smartphone modem business it has become apparent that there is no clear path to profitability and positive returns," Intel CEO Bob Swan said in a statement.

Apple vs. Qualcomm

The writing was on the wall after Apple and Qualcomm settled, ending the two-year battle. Apple in January 2017 had accused Qualcomm of anticompetitive practices that have raised chip prices, restricted competition and hurt customer choice. Qualcomm, the world's biggest mobile chipmaker, had countered that the iPhone wouldn't be possible without its technology, and it deserved to be paid for its innovation.

The settlement marks a big win for Qualcomm, which could have been forced to change its entire business model had it lost to Apple. The agreement is also a victory for consumers, who will once again have access to fast Qualcomm modems -- including ones already compatible with existing 5G networks.

"With the market for 5G accelerating, the need to guarantee a 5G iPhone in 2020 clearly proved a powerful motivator for a settlement," CCS Insights analyst Geoff Blaber said. "Commercial pragmatism ultimately won."

But with Intel exiting the 5G modem business, Apple is once again left with only one modem supplier, Qualcomm. Apple makes its own applications processor -- the brains of the iPhone -- but it relies on third-party chips for network connectivity. From the iPhone 4S in 2011 to the iPhone 6S and 6S Plus in 2015, the sole supplier for those chips was Qualcomm. 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.

It continued that trend in 2017, but Apple's latest phones -- the iPhone XSXS Max and XR, now only use Intel 4G chips. Apple blamed Qualcomm, but now that the two companies have settled their patent disputes, Qualcomm will again provide chips for Apple.

For Apple, it's likely too late to use Qualcomm chips in its iPhones coming later this year. But it's believed the iPhones in 2020 will have Qualcomm's 5G modems. It's expected that every major flagship Android phone by the end of this year will have 5G.

 An Intel spokesman declined to say if Intel planned to exit the business before the settlement or because of the new agreement between Apple and Qualcomm.

Investors seemed to approve of Intel's decision. Shares in the chipmaker jumped almost 4% to $58.97 in after-hours trading.

"Without Apple, Intel's phone modem business is bereft of options," said Charles King, an analyst with Pund-IT. "The settlement and licensing agreement left Intel without a clear way forward in handsets. The company is really better off focusing its energies and investments on 5G infrastructure and data center solutions."

Originally published April 16, 4:39 p.m. PT.
Updates, 5:09 p.m.: Adds Apple vs. Qualcomm details and other background; 5:23 p.m.: Adds analyst comment; 5:32 p.m.: Adds Intel share price; 6:33 p.m.: Adds analyst comment.