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Apple in advanced conversations to buy Intel's smartphone fashion business



Apple
Inc.


AAPL 2.29%

are in advanced calls to purchase

Intel
Corp.


INTC 2.15%

its smart phone modem business, according to people familiar with the matter, a move that would launch the iPhone manufacturer's push to take control of the development of key components driving the devices.

An agreement, covering a portfolio of patents and employees worth $ 1

billion or more, could be reached in the next week, the people said – provided the talks do not fall apart.

Although the potential acquisition price would be a rounding error for companies valued in hundreds of billions of dollars, a transaction would be important strategically and economically.

It would give Apple access to engineering and talent behind Intel's year-long pressure to develop modem chips for the crucial next generation of wireless technology known as 5G, potentially saving years of development work. Apple has been working to develop chips to further differentiate their devices as the smartphone's sales platform globally, and push the iPhone business that has long supported the profits. It has employed engineers, including some from Intel, and announced plans for an office of 1,200 employees in San Diego.

For Intel's part, a deal will allow the company to throw a business that had burdened its bottom line: a smartphone operation had lost about $ 1 billion annually, having a person familiar with the performance, said, and generally failed to meet expectations . While it would leave the smartphone business, Intel plans to continue working on 5G technology for other connected devices.

Intel and Apple have been in conversations off and on again for about a year. They collapsed around Apple achieving a multi-year delivery agreement for Intel-rival modems

Qualcomm
Inc.,

The Wall Street Journal reported in April.

Intel had thrown a wider network for buyers then and received expressions of interest from a number of parties, but the talks with Apple – long regarded as the most logical buyer – soon resumed.

Apple's negotiation agreement with Qualcomm, formerly the only provider of iPhone modems, was part of the solution to a two-year legal battle between the companies on royalties Qualcomm gathers for its wireless technology.

Intel had signed with Apple as the feud worsened, but announced after the settlement that it abandoned the development of modems for 5G smartphones – a bet it had spent a decade and billions of dollars on – and cites no clear path to profitability. Intel had bought its modem business in 2011 from

Infineon Technologies
AG

$ 1.4 billion.

Apple Intel discussions began last summer, around the time former Intel boss Brian Krzanich resigned, people familiar with the matter have said. Mr. Krzanich promoted the modem business and designated 5G technology as a significant future revenue stream. When Bob Swan was appointed to that job in January, analysts said the chance of an appointment increased because his focus on cleaning up Intel would require addressing the losses in the fashion business.

Intel is the latest Apple provider to leave a business after the iPhone manufacturer moved to develop internal components. Late last year, Apple signed a $ 600 million deal to get 300 engineers and plants off

Dialogue Semiconductor

PLS as the company increasingly develops the battery management chips Dialog had delivered.

Apple has been reluctant to cut big deals lately, and prefers to acquire 15 to 20 small companies annually that have the technology it can easily integrate. But with the decline in the iPhone business, the company has become more open to larger deals. It has used the giant cash reserves for share buy-backs and dividends, but still has a significant coffin, with $ 113 billion in cash after March 30. The biggest deal to date is still the acquisition of $ 3 billion in Beats Electronics LLC in 2014.

Apple is entitled to report the fiscal results for the third quarter next week. Intel's results come later this week.

Dow Jones & Co., publisher of The Wall Street Journal, has a commercial agreement to deliver news through Apple services.

Write to Dana Cimilluca at dana.cimilluca@wsj.com, Cara Lombardo at cara.lombardo@wsj.com and Tripp Mickle at Tripp.Mickle@wsj.com

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