Apple is in the final stages of negotiations to buy the bulk of Intel’s modem chip business, The Wall Street Journal reports. The Journal says the deal, valued at $1 billion or more, could be finalized in the next week. The deal would involve the transfer of talent as well as modem-related patents.
Intel’s wireless efforts date back to at least 2011, when the company bought Infineon Technologies for $1.4 billion. Intel hoped to become a major rival to Qualcomm, which has long played a dominant role in the market for wireless chips.
But Intel has struggled to gain traction. That’s partly because Qualcomm negotiated restrictive contracts with potential Intel customers that effectively blocked them from considering a second supplier. After Apple began shipping iPhones with Intel chips inside them in 2016, Qualcomm declared war on Apple, suing for patent infringement and eventually refusing to supply chips for new iPhone models—making Apple dependent on Intel for those chips.
But Intel reportedly struggled to develop 5G wireless chips in time for them to be included in Apple’s forthcoming 2020 iPhone model. So in April, Apple settled its wide-ranging legal war with Qualcomm. Apple’s decision to make peace with Qualcomm evidently destroyed Intel’s chances of making its modem business financially viable, as Intel announced hours later that it was exiting the 5G modem business.
The next month, a federal judge ruled that Qualcomm had engaged in almost 20 years of anticompetitive conduct to maintain its dominant position in the wireless chip business—conduct that hurt the prospects of would-be competitors like Intel. In theory, that ruling should have given Intel’s chip business a boost, but Intel doesn’t seem to have much appetite for renewing its chipmaking efforts. Instead, Intel is reportedly looking to offload the staff and patents from its modem efforts to Apple.
Apple’s efforts to buy Intel’s chip business is an extension of Apple’s broader strategy of developing as many components as possible in-house. Acquiring Intel’s modem chip division could help Apple make itself self-sufficient when it comes to modem chips as well. Apple has already made some progress in this direction, building a substantial office in San Diego, the metro area where Qualcomm is headquartered and where Intel was doing a lot of its wireless chip work.
Making its own modems could have technical benefits for Apple, allowing the company to more tightly integrate its modem chips with other iPhone components. It could also protect Apple in case an appeals court overturns the May antitrust ruling against Qualcomm. If that happens, we can expect Qualcomm to once again use aggressive licensing and litigation techniques to extract large royalty payments from customers, so it would be in Apple’s interest to be able to manufacture its own wireless chips.