Last night, Apple and Intel announced that Apple was acquiring Intel’s 5G modem business valued at $1billion which made this the Cupertino-based company’s second-largest acquisition. This was widely expected after Intel announced earlier in the year that it was putting up its modem business up for sale after Apple & Qualcomm settled their court case. At the time, Apple also announced that it had entered into a deal with Qualcomm for supplying its advanced 5G modem technology post the closure of enmities. But all of this is just a win-win for Apple and Intel, but in the long run, this isn’t the greatest thing for Qualcomm which just signed a multi-year contract with Apple, but it could be thrown under the bus.
Why is this good for Apple
- Apple has been late to 5G. For instance, already there are 5G smartphones rolling out in the market, but the iPhone will only get it next year. While it is likely, Apple will be using Qualcomm modems for the 2020 iPhone, with Intel’s IP and the team now working on top of the team it already has, it can create a differentiated product faster, in less than 3-4 years.
- One of the reasons for the dispute between Apple and Qualcomm was the fact that Apple felt the royalty & licensing fees for Qualcomm’s modems was unfair. Apple bypasses all of this from a long term perspective by using its own modem.
- From a long term point of view, this team could potentially also work on 6G technologies which are just a pipe dream but since Apple would be developing its own IP and this would give it the fastest pathway to be ahead of the curve.
- Apple’s business increasingly will not be about the iPhone. The Apple Watch and AirPods are two good examples of new generation products that are doing well. There is chatter about AR glasses and for all of this 5G will be crucial.
- 5G will also have a huge role in IoT and Apple’s HomeKit platform in tandem with future models of Homepods could integrate this technology. This could also play well with the rumoured ARM-based Macs.
- Apple likes to own proprietary IP – right from the SoC, the wireless stack, the GPU to even power controllers and image single processors, iPhones and iPads do it all on their own. The one element which arguably is the hardest to develop is the modem, now this acquisition allows it.
Why this is good for Intel
- Under the direction of its new CEO Robert Swan, Intel wants to beef up its bottom line which was being throttled by its modem business which has been losing billions of dollars for years. Getting rid of it makes it more money in the short term and allows it to control expenditure over the long term.
- For Intel, this modem business was never going to be profitable largely due to Qualcomm’s technological advantage and stranglehold on the market. Intel got a foot in the door because of Apple’s dispute with Qualcomm but the modalities of the deal were forcing Intel to devote a lot of the resources of its founderies towards Apple sacrificing more profitable businesses like the server chips which actually make it money.
- Intel’s technological handicap was a huge reason why it sold this business. In 2019, Intel was nowhere close to having a first-generation 5G modem while Qualcomm had already deployed one. In fact, things grew so bad that there was a high chance that Intel wouldn’t have been ready with the 5G modem for even the 2020 iPhone which would’ve rendered Intel two generations behind Qualcomm — basically a lifetime in product cycle parlance.
- Intel’s technological handicap was also one of the reasons Apple settled with Qualcomm as it was in danger of not having a 5G modem for the 2020 iPhone which would’ve been a huge disadvantage for the premium product in developed markets.
- The settlement meant that in the near term, Apple was again going back to Qualcomm for modems which meant that Intel had no buyers for a product it spent almost a decade developing spending billions of dollars and it would’ve had to keep doing that for longer, but now, with not even a single buyer which was one of the motivations behind the initial investment.
- As a part of the deal, Intel gets to use the IP for IoT chips and PC modems which is its core business so it doesn’t lose the IP per which is a handy thing to have.
The Johny Srouji factor
Apple senior vice president for hardware technologies Johny Srouji has proven to be the haloed mastermind behind Apple’s leadership in silicon technologies that include the A-series of processors, Apple’s custom GPUs that power the iPhone and iPad graphics engine and the wireless chips that go inside the Apple Watch and AirPods. On a hardware level, Apple’s stuff is totally proprietary and ahead of the curve by a generation or two from the Android competition. The only area the iPhone lags behind Android phones is the modem — which comes from Qualcomm — the very company that makes processors for most Android phones.
Srouji is known to be so good that he was even in the running to become Intel’s CEO when its board was looking for a successor for Brian Krzanich. Intel chose conservatively inwards with Robert Swan, but suffice to all that’s incredible about Apple’s hardware products today isn’t coming from the design team that was till recently led by Sir Jony Ive or Craig Federighi’s software team, but Johny Srouji’s hardware team.
He’s Apple’s chip wizard. And the word on the street is that he could do a way better job than Intel’s hardware chief Venkata Renduchintala who led the modem business for them. In fact, according to the Information, in one of the dealings, Sruoji snapped at Renduchintala saying, “this would have never happened at Apple under my watch,” indicating Apple’s displeasure at Intel’s lack of progress but also indicative of the fact that if the team was at Apple, they would’ve made more progress.
Srouji’s confidence in this was reflected in the fact that he hired Umashankar Thyagarajan in February to lead Apple’s 5G modem development from Intel, where he was doing the same thing. In fact, for a while, Apple had been poaching talent from both Intel and Qualcomm for this 5G modem. There is a clear indication that Apple feels that if Srouji was leading these teams directly, they could develop a better product faster and more tuned to Apple’s lofty needs.