Apple buys Intel’s smartphone modem assets for $1 billion

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Apple is looking to buy Intel Chips and squeeze out Qualcomm
Image: Quentin Sokolow / The Burn-In

Earlier this week, The Burn-In reported Apple was in negotiations with Intel to acquire the chipmaker’s smartphone modem business. On Thursday, the iPhone maker officially announced it would be purchasing the semiconductor firm’s mobility IP and equipment. The Big Tech firm will also acquire 2,000 workers as part of the transaction, which should be completed by the end of 2019.

Apple hardware technologies senior vice president Johny Srouji said the acquisition would “help expedite our development on future products and allow Apple to further differentiate moving forward.” Similarly, Intel CEO Bob Swan noted the sale would help his company direct its efforts to develop new 5G solutions.

Apple Wants Independence

In 2009, Apple CEO Tim Cook told Fortune he wanted to ensure his corporation developed its components in-house. “We believe that we need to own and control the primary technologies behind the products that we make.” Given the firm’s recent issues of its mobility suppliers, Cook’s position makes a lot of sense.

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Apple broke with Qualcomm in 2016, citing exorbitant product and licensing costs. In response, the chipmaker sued its former client, and the two tech giants waged a multiyear legal battle. In the interim, the iPhone maker bought its smartphone modems from Intel, which consumers found to be of lower quality.

Ultimately, Apple and Qualcomm settled their disputes and entered into a new six-year supply agreement. However, just because the two tech behemoths stop fighting, that doesn’t mean their relationship is sanguine. Indeed, a U.S. district court judge ruled Qualcomm did use its dominant market position to overcharge its customers.

As a result of Apple and Qualcomm’s renewed partnership, Intel announced it would exit the smartphone business. Consequently, Cook’s saw an opportunity to advance his long-term strategy.

With its new acquisition, Apple has taken a big step to further its goal of manufacturing independence. For one thing, its purchase of Intel’s patents, equipment, and staff will allow it to separate from Qualcomm for good. Furthermore, with its chipset production in-house, the company can work to improve the quality of its smartphone modems.

Indeed, Apple recently announced to expand its networking hardware division by making 1,200 new hires in San Diego. As it happens, Qualcomm is based in the same California city.

Intel Also Wins

While Apple’s purchase of Intel’s chipset business is a victory for the iPhone maker, it’s also a positive step for the semiconductor manufacturer. At one point, the company intended to become a significant rival to Qualcomm in the ability sector. However, its inability to out-innovate its competitors made the segment a loser for the brand.

Bob Swan, who became Intel CEO in February, had a clear understanding of the company’s predicament and took the appropriate actions. He didn’t waste time pitching inferior 5G modems to HTC or LG after the Apple-Qualcomm deals announced. Instead, he quickly made a deal to divest his company of assets it couldn’t use.

With its new capital, the company can continue developing next-generation networking components, establishing its brand among content creators; and realizing the full potential of Industry 4.0.