Why Apple Wants To Buy Intel’s Modem Business
Apple (NASDAQ:AAPL) is reportedly in advanced talks to acquire Intel’s smartphone modem business, as it looks to build its own 5G chips for the iPhone. While the deal – which could be valued at ~$1 billion – will be a drop in the bucket for Apple, it could have a significant strategic impact for its iPhone business. In this analysis, we take a look at how a deal would impact the company and Apple stock (shows valuation and other analysis).
View our interactive dashboard analysis How Could Apple’s Margins Benefit If It Designed Its Own Baseband Chips? You can also see Trefis data for Information Technology Companies .
Why Does Apple Want To Build Its Own Modems?
- Modems are one of the most complex and expensive parts of a smartphone, handing the transfer of data with cellular and other wireless networks.
- Apple presently uses Intel’s 4G chips on its flagship iPhones and intends to use Qualcomm chips for its 5G iPhones (likely to launch in 2020 or 2021).
- However, the company has been progressively using more custom silicon on its devices (A-Series app processors, wireless audio chips, etc.), as it looks to better differentiate its products and improve performance.
- By developing proprietary modems, Apple could improve wireless performance and battery life on its devices.
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What Can Intel Bring To The Table?
- While Intel invested a significant amount of time and money developing its modem operations, the business did not turn a profit.
- The company bowed out of the 5G modem race after Apple forged a chip supply agreement with Qualcomm in April.
- By acquiring Intel’s modem operations – which will likely include intellectual property and staff – Apple could get significant modem expertise without having to start from scratch.
Apple Could Cut Costs By Using Proprietary Chips
- Competition in the smartphone components market is fairly limited, considering the high barriers to entry both in terms of technology and capital investments, and this means that vendors have significant pricing power.
- While 4G baseband chips cost Apple about $18 for the iPhone X series per IHS Markit, 5G chips are expected to cost twice as much as 4G chips per JP Morgan (although prices will likely decline with time).
- By designing its own modem chips, Apple could protect its margins and be less dependent on the roadmap of vendors such as Qualcomm.
- See our analysis How Could Apple’s Margins Benefit If It Designed Its Own Baseband Chips?
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