In April, Intel announced it wouldn’t be making chipsets for the fifth generation of mobile handsets. Following that declaration, the firm’s CEO Bob Swan explained why the company changed its tack so abruptly. The corporation felt the segment wouldn’t be profitable after Qualcomm and Apple renewed its once-fractured business relationship.
Despite inking a five-year agreement with Qualcomm, Apple is reportedly interested in making its chipsets in-house via Intel’s German-based modem business.
Why Apple Wants Intel’s 5G Chips
On its face, Apple’s move to acquire Intel’s next-generation modems seems paradoxical. The company’s leadership knows Qualcomm’s chipsets consistently outperformed those made by the Santa Clara, California-based semiconductor giant. Furthermore, the firm is aware that its years-long legal battle with Qualcomm began because it ended its previous business arrangement.
However, the Silicon Valley corporation is likely interested in diversifying its components sourcing for one great reason. Apple is eager to end its relationship with Qualcomm permanently.
The iPhone maker had to shell out billions of dollars to settle its ongoing legal disputes with its longtime supplier. Moreover, the firm likely paid close attention to the outcome of the Federal Trade Commission’s antitrust suit against Qualcomm.
Last month, U.S. District Court Judge Lucy Koh ruled the chipmaker maintained a patent monopoly to demand outrageous licensing fees from companies like Apple. Though the judge mandated Qualcomm must create new, more favorable deals with its clients, Apple might be holding a grudge. In buying Intel’s 5G business, the firm could end its relationship with the industry-leading chipmaker permanently.
Plus, Apple could install new, potentially better designers to oversee the development of its 5G modems. Indeed, Ars Technica reported the corporation began hiring in Qualcomm’s native San Diego in April to lure away its top talent.
Why Intel Might Want to Sell Its 5G Business to Apple
Even without Apple’s interest, Intel has significant motivation to divest itself of its 5G business.
Lacking a sourcing agreement with Apple, the segment won’t be very profitable. Mobility giant Samsung makes its chipsets, and the U.S. government now forbids American companies from doing business with Huawei.
Despite its size, Intel isn’t in a position where it can afford to underwrite an underperforming smartphone modem division.
In May, the corporation lost nine percent of its market value after lowering its revenue forecasts. Despite beating analyst expectations in Q1 2019, Intel believes the softening of its Chinese data center business will hurt its income for the rest of the year.
Overall, Intel selling its 5G segment to Apple would be an ideal strategic move on the component manufacturer’s part. It would provide the corporation with a much-needed cash injection and allow it to devote more of its resources to its new mission; rebuilding its laptop business.