[Updated]: Apple buys Intel’s smartphone modem business for $1 billion, the company announced on July 25, 2019. According to the agreement, approximately 2,200 Intel employees will join Apple, along with its intellectual property, equipment and leases.
In one of the most important deals regarding 5G chip development, Apple Inc. (NASDAQ:AAPL) is close to reaching an agreement with Intel to buy off their 5G modem development arm. This allows Apple to have access to a lot of developmental work and save them a lot of time and money as well. But the price to be paid right now? Money. Loads and loads of money. It is supposed that Apple would pay somewhere around $1 billion to acquire Intel’s 5G Modem business, which appears essential for the success of upcoming iPhone models.
But, It begs the question of is Apple’s paying too much for too little? And, more importantly, is the deal beneficial for either party? Let us look at it in a little more detail.
Intel and Apple: A Deal that Was Meant to Happen
It is no secret that this deal between Apple and Intel was long overdue. Apple initially worked with Qualcomm chips for iPhone. But after the latter accused the former of exorbitant licensing fees and stolen patents, Apple shifted to Intel modems. Later, after the two years of the litigation period both the companies decided to bury the differences and reached a settlement stage. Apple moved its chips back to Qualcomm, and naturally, it was kind of an end of Intel’s 5G modem for the smartphone. Losing your best – and only – client to a direct competitor can just be hard to take.
Intel’s modem business arm was losing a lot of money on its own anyway. The modem business has been losing a total of $1 billion annually, making it as far from profit as is possible. They themselves bought their modem business from Infineon technologies AG in 2011 for $1.4 billion. The simple fact that after 8 years they are selling for lesser than the money they bought it for signifies Intel’s desperation to get rid of the business.
Industry analysts believe that if Apple buys Intel 5G modem business it’s going to be really beneficial for Intel. Not only Intel would be able to get rid of a deadwood business that has been costing them a lot of money every year, but they are going to receive a substantial amount of money in the process.
Acquisition of Intel’s 5G Modem: Well Calculated Move
When we look at Apple’s side of the deal, things start simplifying down. The acquisition of intel’s 5G modem business save them years of research and developmental work. Moreover, Apple can also further dedicate a whole new specialised team for developing modems specifically for its iPhone and tailored to specific needs. In order to make the most of the moment when the new technology wave of 5G hits the world in the near future, Apple wouldn’t mind splashing the cash at this point in time. With sales of iPhone flatlining globally, 5G represents a real opportunity for Apple to get back in the game and compete with the other brands dominating the globals smartphone market right now.
That’s not all for Apple. The acquisition of Intel 5G modem business will have added benefit for Apple in regards to patents. If iPhone maker decides to venture into the 5G business by developing their own 5G modems, there is a huge possibility that Huawei – one of the mega powers in the world of 5G – might just slap a multi-billion dollar lawsuit on Apple for 5G patent violations. After the deal, however, Apple would be the owner of the 5G patent portfolio of Intel. Hence, there would be no particular violations committed.
The acquisition of the Intel 5G modem business would directly slot it into one of Apple’s biggest-ever acquisition. Till date, the largest acquisition of Apple remains Beats Electronics LLC, acquired in 2014, for a whopping $3 billion.