Intel sold smartphone modem business to Apple because only serving Apple was unattractive

Posted:
in General Discussion edited August 2019
Intel CEO Bob Swan in a Wednesday interview explained the reasoning behind selling his company's smartphone modem assets to Apple, saying the exclusive nature of its relationship with the iPhone maker made staying in the business unattractive.

Intel


Speaking with CNBC, Swan said 5G modems were not an area that would drive growth for the industry.

The comment seems counterintuitive considering the 5G smartphone market is in its infancy, with device manufacturers around the world only now preparing hardware integrations for the next-generation communications technology. Swan partially explained his line of thinking by adding that Intel's sole smartphone modem customer was Apple. As such, remaining in the business was not an appealing proposition.

"So we doubled down on 5G networks where we think there's real opportunities and last week we announced the sale of the 5G smartphone modem to Apple. But we also retained access to the technologies in the event that we need a 5G modem for non-smartphone applications, like a PC or an automobile," Swan said.

After relying solely on Qualcomm cellular modems for its iPhone and iPad products for years, Apple diversified its supply chain to include baseband chips from then-newcomer Intel with 2016's iPhone 7. After splitting orders with Qualcomm in 2017, Intel became Apple's lone iPhone modem supplier with 2018's iPhone XR and XS.

At the same time, Apple in 2017 launched a legal campaign against Qualcomm alleging its licensing strategy amounted to extortion, monopolistic practices and price gouging. A series of countersuits and complaints were subsequently lodged in various world courts and with international regulatory bodies.

During the legal scrum, Apple was rumored to be working with Intel on a future integration of the chipmaker's XMM 8160 modem, 5G-capable silicon initially expected to debut in the second half of 2019. Reports earlier this year suggested Apple ramped up efforts to build an in-house modem having "lost confidence" in the Intel's ability to deliver its modem on schedule.

In April, Apple and Qualcomm reached a surprise settlement that involves a multi-year chip deal, allowing Qualcomm to once again supply iPhone modems. That same day, Intel announced plans to exit the smartphone modem industry, a move viewed by some as a concession that its 5G hardware was unable to compete with established Qualcomm chips.

Last week, Apple said it had purchased Intel's smartphone modem patents in a $1 billion deal that included key personnel.

Swan's comments on Wednesday steered clear of acknowledging Intel's position prior to Apple's acquisition.

Despite exiting the baseband chip business, Intel is heavily investing in mobile networks as it attempts to capitalize on so-called "cloudification" efforts. The company last month inked a deal with Japanese internet firm Rakuten to create the "world's first end-to-end cloud-native mobile network," CNBC reports.

According to Swan, Intel is betting that processing will move "from the cloud or from the data centers into the networks," the report said.
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Comments

  • Reply 1 of 25
    Rayz2016Rayz2016 Posts: 6,771member
    Him: “It makes no sense serving one customer!”

    The reality: “We couldn’t sell our modem to anyone else.”


    coolfactorvirtualshift1STnTENDERBITSflyingdpravnorodom
  • Reply 2 of 25
    coolfactorcoolfactor Posts: 1,803member

    The only reason that Apple was using Intel modems was because of Qualcomm's behaviour. Dozens of Android hardware makers don't care about such principles, as long as they can sell their garbage to as many consumers as possible knowing that the devices won't last and those same consumers will be back for more soon.

    I suspect that Qualcomm sells its modems much cheaper than Intel was, and Apple was the only one willing to pay Intel's price, given their situation with Qualcomm.

    Way to go Intel CEO, stab your biggest customer in the back. Genius.

    racerhomie3virtualshiftAppleExposedravnorodom
  • Reply 3 of 25
    Rayz2016Rayz2016 Posts: 6,771member

    The only reason that Apple was using Intel modems was because of Qualcomm's behaviour. Dozens of Android hardware makers don't care about such principles, as long as they can sell their garbage to as many consumers as possible knowing that the devices won't last and those same consumers will be back for more soon.

    I suspect that Qualcomm sells its modems much cheaper than Intel was, and Apple was the only one willing to pay Intel's price, given their situation with Qualcomm.

    Way to go Intel CEO, stab your biggest customer in the back. Genius.

    Intel knows it’ll cost them nothing in the long run. Apple’s pretty much done with their sh*t. 
    AppleExposed
  • Reply 4 of 25
    rerollreroll Posts: 59member
    Wondering about what this last comment will concretely lead to: move processing from clouds to the networks. I think I understand the idea, I’m not sure what they can achieve that isn’t already possible with the cloud.
  • Reply 5 of 25
    seanismorrisseanismorris Posts: 1,624member
    I don’t think I disagree with anything Intel’s CEO said...  Having one customer is high risk.  Losing money, and with no foreseeable outlook to turn the division from red to black isn’t sustainable.  When Apple pulled out, Intel had no choice to get out.

    Intel probably had other options than selling to Apple.  Maybe they could spin the division off, but they’d still have to finance it.  It’s not like as a separate entity it could go public (to raise cash) not with no customers...

    Instead, sold it cheap to a valued partner... maybe Apple now owns them a favor.
    mac_dogchemengin1
  • Reply 6 of 25

    I don't think Intel signed any exclusivity contract with Apple. Apple being their sole customer could be more to do with the fact that Intel just wasn't able to market their modem properly to anyone else.

    Just speculation on my part.

  • Reply 7 of 25
    mattinozmattinoz Posts: 1,566member

    I don't think Intel signed any exclusivity contract with Apple. Apple being their sole customer could be more to do with the fact that Intel just wasn't able to market their modem properly to anyone else.

    Just speculation on my part.

    The writting was on the wall when they dropped out of ARM soc's for the market.

  • Reply 8 of 25
    entropysentropys Posts: 2,966member
    I don’t think I disagree with anything Intel’s CEO said...  Having one customer is high risk.  Losing money, and with no foreseeable outlook to turn the division from red to black isn’t sustainable.  When Apple pulled out, Intel had no choice to get out.

    Intel probably had other options than selling to Apple.  Maybe they could spin the division off, but they’d still have to finance it.  It’s not like as a separate entity it could go public (to raise cash) not with no customers...

    Instead, sold it cheap to a valued partner... maybe Apple now owns them a favor.
    Apple needs to keep intel sweet because of x86 chips. And besides, the intel baseband modem business if tailored specifically for Apple might deliver sooner and better where it couldn’t to date due to intel’s broader priorities. 
  • Reply 9 of 25
    RandyrandersonRandyranderson Posts: 2unconfirmed, member
     Intel modems are stand-alone modems that would require an Android manufacturer to buy processors from Qualcomm anyways. It's a lot easier to just buy the processors and modems together for Android phone makers. The Intel modems are a generation behind QC modems also in speed and don't have as good speeds in low signal situations.
  • Reply 10 of 25
    I wrote this in a different thread a week ago:
    "Afaik, there were no other vendors using Intel modems.  I think [think] Apple was their only modem customer.  It's why they were losing money.  Component manufacture only makes sense at volume.  Apple alone wasn't enough volume for intel to be profitable.  I believe Intel took the initial losses hoping to grow it mobile business to include other vendors... piggybacking of their relationship with Apple.  Problem was, Intel has always had a reputation for missing deadlines.  Well earned reputation.  Crappy, but totally okay for PC's.  Not so for mobile.  Mobile is a yearly grind.  Incessant and unforgiving.  Deliver the new chip or GTFOH.  That XMM 8160 was rumored to have problems from the get go and never got back on track.  Hopefully for Apple, there's some wheat in that chaff from Intel."

    Swan basically said the same thing minus my speculation regarding the reasons no one else was interested in their chips.  

    I suspect that Qualcomm sells its modems much cheaper than Intel was, and Apple was the only one willing to pay Intel's price, given their situation with Qualcomm.

    Way to go Intel CEO, stab your biggest customer in the back. Genius.

    Wasn't it much more likely that Qualcomm's chips were better and Intel had a reputation for not delivering on time?  I also suspect Qualcomm's modems may have been cheaper.  Cheaper because of economies of scale.  Qualcomm sold multiple chips in multiple variations to multiple customers.  Intel sold 1 chip to 1 customer.  That relationship was only ever going to produce negative equity for Intel.  Worse, that chip had a reputation of being inferior to Qualcomm's.  The only way Intel was going to pick up more customers was to go further into the negative for a longer time by lowering the cost.  That wasn't going to work because Qualcomm's chips were already cheaper and viewed as superior.   

    Not really sure what you saw in this situation that lead you to conclude Intel stabbed Apple in back.  Intel's modem business was a dead man walking the moment they agreed to make the chip for Apple.
    gatorguy
  • Reply 11 of 25
    macplusplusmacplusplus Posts: 2,028member
    Wise move. Instead of dealing with the itty-bitty requirements of a smartphone modem, they focus on 5G network chips where Huawei has claims like being the first. Since Huawei is banned, they virtually have no competitor in that market.
  • Reply 12 of 25
    spice-boyspice-boy Posts: 1,433member
    What happened to Apple's philosophy of only acquiring small companies? This is big corporate merger crap other companies do to squash competition in an industry. 
  • Reply 13 of 25
    spice-boy said:
    What happened to Apple's philosophy of only acquiring small companies? This is big corporate merger crap other companies do to squash competition in an industry. 
    This isn't big corporate merger levels.  Apple acquired a small division of Intel... basically still following that smaller company philosophy.  Apple buying that small division doesn't do anything to squash competition.  Qualcomm, Huawei, Samsung, MediaTek, and the dozens of other smaller players are still doing what they've always done.  Apple acquired this small division for their own use.  I seriously doubt they're planning on entering the chip market as a supplier.
    muthuk_vanalingamAppleExposedStrangeDaysmattinoz
  • Reply 14 of 25
    gatorguygatorguy Posts: 22,899member
    Wise move. Instead of dealing with the itty-bitty requirements of a smartphone modem, they focus on 5G network chips where Huawei has claims like being the first. Since Huawei is banned, they virtually have no competitor in that market.
    They also retained rights to all the IP and use of 5G chipsets in pretty much anything other than a smartphone. They kept options open. Smartphones were not going to be a viable market for them so they weren't left with much choice other than cut their losses and sell that piece to Apple.
    1STnTENDERBITSGG1
  • Reply 15 of 25
    1st1st Posts: 443member
    vertical integration make sense, particularly for ultra high speed - anything travel between modules degrade performance and increase cost.  Apple got a sweet deal and Intel doesn't have stomach or will or capability to fight with Qcom - not because the technolgy, but roadmap dictated by Qcom processor - you can't get peek of design compatibility until its released - you always 6-8 month behind.  
    What's next? Apple might want to eye amp?
  • Reply 16 of 25
    It's something to see a company admit that their product wasn't attractive enough to drive any demand whatsoever.
  • Reply 17 of 25
    NotsofastNotsofast Posts: 450member
    People are way over analyzing this.  It's simple from both perspectives.  

    Apple had the upper hand with Qualcomm, but once they realized that Intel wasn't going to have the 5G modem ready in time for 2020, they had no choice but to use Qualcomm modems, so they agreed to settle out of court with Qualcomm.

     Intel, on the other hand, knew that Apple wasn't going to be staying with them long term as Apple had, a fact that many people forget, a major effort with a huge number of people already underway to build its own modem, so Intel knew it was spending billions and tying up huge resources to build modems, an effort started under the previous CEO,  for a business that was already "dead man walking."  Once Apple settled with Qualcomm, it gave Intel a face saving way to get out of the modem business.
  • Reply 18 of 25
    avon b7avon b7 Posts: 5,765member
    reroll said:
    Wondering about what this last comment will concretely lead to: move processing from clouds to the networks. I think I understand the idea, I’m not sure what they can achieve that isn’t already possible with the cloud.
    Think about latency and privacy. Some things are better dealt with out of the cloud and 5G is the wave that IoT will ride on. Your car and it's surroundings will be processing a huge amount of data at some point and a cloud connection will serve for some of that but not all of it. If your car has to detect a person crossing a pelican crossing when the car has a green light, latency is key. The system will be able to 'sense' the three elements (traffic light, pedestrian and car) and act accordingly. There will also be car-to-car networks so when your car brakes suddenly (to not hit the pedestrian), the car behind it will know not to smash into its rear end.

    I think that is one area that intel might be referring to. There are probably others.
    muthuk_vanalingam
  • Reply 19 of 25
    MplsPMplsP Posts: 3,044member
    If there were a viable market outside of Apple, it would have changed the picture, but, as Randyranderson points out, between the processor integration and the extortion practices of QC the foreseeable market for Intel modems was minimal, even if they had caught up to QC in terms of performance. 

    Given that outlook, I can't blame Intel for selling off the modem business. Otherwise they risked investing a lot of money in R&D only to have Apple ditch them and go back to QC, at which point they're high and dry, out millions in R&D money and a product with no customers. Now Apple bears the risk and expense of R&D.
  • Reply 20 of 25
    saareksaarek Posts: 1,307member
    If Apple can do half as much with the future modems inside of their devices as they did with their CPU's and GPU's then this makes so much sense. The price paid is almost pocket change to Apple, but the benefits they will reap should be huge.
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