Intel sold smartphone modem business to Apple because only serving Apple was unattractive
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.
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.
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.
Comments
The reality: “We couldn’t sell our modem to anyone else.”
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 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.
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.
"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.
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.
What's next? Apple might want to eye amp?
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.
I think that is one area that intel might be referring to. There are probably others.
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.