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Apple buys Intel's Troubled 5G Smartphone Modem Business



Apple has announced that they are buying Intel's smartphone modem business, giving Apple the ability to produce mobile modem chips for existing 4G and new 5G networks, among other benefits. The $ 1 billion deal transfers technology, patents, and 2200 Intel employees to Apple.

Apple does not state how many of the 132,000 employees working in the chip division, but based on industry reports and announcements over the past decade – a report said 1,000 in 2011 – it could easily already be twice as much as now. The chip design and intellectual property are absolutely necessary, but hiring these qualified people in highly specialized occupations at once is at least as important.

Apple and Qualcomm

Apple had increasingly approached Intel for 4G chips under Apple's multi-year dispute with Qualcomm about chip prices and intellectual property, first off-competition and then ̵

1; as Apple claimed in a lawsuit – when Qualcomm would not deliver them. But then, Intel's relatively new CEO abruptly announced in April 2019 that Intel would leave its 5G smartphone modem business and said there was no way to profit. The division reportedly lost $ 1 billion last year.

The next day, Apple and Qualcomm said they had settled all outstanding issues, Apple would pay Qualcomm an undisclosed amount, and the two companies had made a 6-year deal for Qualcomm to give chips an opportunity to extend it further. 2 years (see "Apple and Qualcomm Settle Patent Royalty Suits and Accept to Licensing," April 17, 2019).

That deal surprised industry analysts and regulators. But Apple and Intel were reportedly discussing the smartphone modem business since mid-2018, when Intel's new CEO took over, and Apple must have had months of settlement calls already with Qualcomm to publish a deal so quickly.

Making matters more complicated, in May 2019, US court judge Lucy Koh stated in a lawsuit from the FTC that Qualcomm's licensing practice was illegal. Her ruling said that Qualcomm couldn't threaten to hold back chips while negotiating a deal in the future. Qualcomm denied that it had engaged in this practice, even though Apple charged it for just that in its own lawsuit. Qualcomm requested a stay on the decision in the FTC case, something Koh denied. Qualcomm then filed an appeal on July 9, 2019.

If the Appeals Court makes an immediate request, Qualcomm's current agreements remain in place. If the court rejects Qualcomm's request, even if it agrees to process the appeal in due time, Qualcomm will be forced to change negotiation practices immediately – but the Apple agreement may remain in place since the companies solved their cases privately. And the outcome of the appeal can be several years away and give even more changes.

To add even more complexity, Apple will probably use Intel 4G chips in the iPhone models that come out this fall, despite the chips performing poorly compared to Qualcomms in 2017, when iPhones used a mix of Intel and Qualcomm mobile phone. Apple freezes hardware design many months before shipment to switch to production cycles, and it is impossible that Apple can have time to redesign the new models around Qualcomm chips given the date of the deal.

If the Intel chips really lag, you can expect Apple to wait until it has adjusted its performance to match or beat Qualcomm, especially since 5G networks are starting to appear. Apple has often been a generation behind other smartphones in adopting computer technology upgrades, and chose to focus on battery life and reliable performance in front of a marketing point of possible speed.

Apple and Intel

Intel's exit is the latest in a two-decade long line of company's failure to produce industry-leading modem chips, wireless technology standards, and mobile CPUs. (Remember XScale, Atom and WiMAX?) Intel bought its Infineon modem business in 2011 for $ 1.4 billion.

This deal is changing Apple's position it loves to be in: no longer dependent on other companies to set their own roadmap and agenda. While Apple had been pursuing this software for a long time, it acquired P.A. Semi, then a small company with 150 employees who designed ARM-based CPUs for $ 278 million. The acquisition led to Apple's A-Series chips now running iPhones and iPads, and many believe will be the calculator behind at least some of Apple's future Macs.

Apple also began using its own graphics chips on the iPhone 8, 8 Plus, and X, and Tim Cook and crew committed to $ 600 million to license Dialog Semiconductor's power chip design and shift 300 employees to Apple.

5G networks can use a wider range of frequencies than 3G and 4G networks, which require complicated new chip designs and networks. The potential is for much higher speed and better support for a huge number of units. (If your phone currently claims to use 5G, don't believe it – it's marketing hypothesis and nonsense. Carriers did the same with 4G.)

Despite the acquisition, Intel will continue to develop modem chips for computers, Internet of Things devices and other non-smartphones. These markets can increase sales of billions a year as 5G connectivity spreads outside of smartphones and tablets.


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