Apple’s decision to invest a billion dollars in purchasing most of Intel’s modem development unit will bring rewards in future. Here’s what you need to know:
Apple takes control of over 17,000 wireless technology patents as a result of the deal. These include patents that relate to cellular standards, modem architecture, modem operation, and chip engineering. This gives Apple a much stronger voice in conversations around future mobile standards.
This is important. 5G and 5G services are expected to unlock the next chapter in digital transformation, introducing yet more profound change. Apple needs to ensure it’s a peer player in that space.
Approximately 2,200 Intel employees will become Apple employees. These teams have worked closely with Apple – not only was Intel’s modem business built on the back of Apple’s former modem supplier, Infineon, but Apple was also Intel’s biggest modem customer.
What wasn’t sold
Apple is only acquiring Intel’s smartphone modem business.
Intel will still be permitted to develop modems for non-smartphone applications, such as PCs, internet-of-things (IoT) devices and autonomous vehicles.
This also relates to 5G-related network infrastructure.
I can’t help but think this part of the deal may prove much more significant in future, particularly given significant concerns around the international security implications of 5G equipment. It’s possible both companies see a business opportunity there.
Johny Srouji makes the play
Announcing the deal, Apple quoted Johny Srouji, senior vice president of Hardware Technologies. In the context of a billion-dollar deal, the decision to lead with a quote from Srouji arguably reflects the importance of proprietary silicon development to the company and underlines just how well the company’s silicon development units have been achieving.
What the companies said about the deal
With a billion dollar deal, both Intel and Apple had something to say:
Intel CEO Bob Swan said:
“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.
“We have long respected Apple and we’re confident they provide the right environment for this talented team and these important assets moving forward. We’re looking forward to putting our full effort into 5G where it most closely aligns with the needs of our global customer base, including network operators, telecommunications equipment manufacturers and cloud service providers.”
Johny Srouji, Apple’s senior vice president of Hardware Technologies:
“We’ve worked with Intel for many years and know this team shares Apple’s passion for designing technologies that deliver the world’s best experiences for our users.
“Apple is excited to have so many excellent engineers join our growing cellular technologies group, and know they’ll thrive in Apple’s creative and dynamic environment.
“They, together with our significant acquisition of innovative IP, will help expedite our development on future products and allow Apple to further differentiate moving forward.”
Apple hopes to ship 5G modem in 2021 – Reuters
Apple settled its outstanding litigation with Qualcomm earlier this year, agreeing a six-year modem supply deal.
That deal means it is likely the 2020 5G iPhones will carry modems from Qualcomm. The acquisition is expected to help Apple develop its own 5G modems for use in its devices.
There had been concern the company would be unable to achieve this before 2025, but a Reuters report claimed it may want to accelerate this to launch in 2021.
“A person familiar with the matter said Apple plans to use Qualcomm’s modem technology for a 5G iPhone in 2020 but wants to have an internally developed 5G modem ready for use in some of its products by 2021. Intel previously disclosed plans to have a 5G modem ready by 2020, so tapping the Intel assets could help Apple hit its target.”
What the analysts are saying
Analysts see it as a positive step, but warn there’s more work ahead:
Patrick Moorhead, Moor Insights & Strategy:
(Provided to CW)
“I am happy Intel got anything for the assets and glad those resources will still have jobs. I don’t see these assets translating into anything that has the chance to challenge Qualcomm for 3-5 years and even then, Qualcomm still gets compensated for its IP, even on Apple modems. The biggest thing to keep in mind about 5G is that the game is not simply modems, it is the linkage between modem and RF.
“It took Samsung and Huawei 8-10 years to field competitive modems and while Apple’s acquisition gives it a head start, consider those companies have networking assets, making designing a modem easier. Apple will likely no longer have access to Qualcomm source code to improve their own modems making the goal even harder. Intel was significantly behind in 5G smartphone modems and had a very time hitting mmWave performance and battery life requirements so Qualcomm starts with a multi-year lead. If you remember, the last time Intel shared the financials from the modem business it was at close to a $4B loss, indicating that it was spending more than that on R&D. Apple has to double down on this R&D commit to field a modem then catch up with Qualcomm.”
Dimitris Mavrakis, Research Director at tech market advisory firm, ABI Research:
(Provided to CW):
“Apple’s acquisition of Intel’s 5G modem business will not only allow the iPhone manufacturer to gain world-class expertise in cellular modems, which is one of the most challenging areas in R&D, but also allow it to strike better deals with other major 5G patent holders. Apple will also potentially be able to negotiate better terms with its current 5G suppliers as well as integrate parts of the 5G modem into its existing processors.
“It is important to note that by inheriting some of the key 5G patents developed by Intel, Apple will be able to differentiate its 5G offering in what will soon be a very highly competitive 5G landscape.”
Raymond James analyst Chris Caso:
The analyst said he now has, “Increased conviction in the impact of a 5G iPhone product cycle in 2020,” but warned he expects this year’s upgrade cycle to be the “weakest in years”.
Apple’s 5G road map now looks like this:
If Apple can deliver its own 5G modem by 2021, then its future 5G roll-out plans may look like this:
2019 iPhones: Non-5G modems.
2020 iPhones: 5G modem from Qualcomm.
2021 iPhones: Apple has a multi-year deal (around six years) with Qualcomm. With that in mind, it seems possible the company will ship its first 5G modem in an iPad or other device, rather than deploying it across all its mobile products at the same time.
2022-2023: Apple will drop its own 5G modems into iPhones.
When does the deal close?
The deal is expected to close in Q4 2019, subject to regulatory approval.
Will there be more like this?
I think so.
One of the big lessons Apple has learned since the company’s inception is the need to ensure the silicon it uses is the best in the industry.
It learned a second lesson during its arguably unsuccessful attempts at litigation to protect iPhone and OS hardware/software design against the Android onslaught: That in the current environment, tech patents are easier to defend than design patents.
Apple now intends creating the world’s best-designed products using proprietary technologies the company owns – things no one can imitate without consequence beyond cost.
What Tim Cook said
Apple CEO Tim Cook once said: “We believe that we need to own and control the primary technologies behind the products that we make.”
Apple continues to do so on an operating system basis, but its outstanding silicon development teams now enable it to develop its own unique hardware tech too.
Watch this space.
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