Apple said Thursday that it will spend $1 billion to buy most of Intelâ€™s business that makes modems for smartÂphonesâ€”the crucial chips that connect devices to cell netÂworks and Wi-Fi. The deal gives the iPhone maker new power to customize and control the technology inside its mobile devices at a time when the industry is moving to new and faster 5G cellular connections.
Apple did not disclose how it will pay the $1 billion. The amount is less than 0.5 percent of its cash hoard, which it said in April totaled more than $225 billion. In a statement, Johny Srouji, Appleâ€™s senior vice president of hardware technologies, said the purchase would â€œexpedite our development on future prodÂucts and allow Apple to further differentiate moving forward.â€
The deal also remedies a headache for chipmaker Intel. Its modem business had become a lame duck after the company said in April that it was abandoning work on 5G technology for smartphones.
Appleâ€™s purchase fits with a strategy that has kept the iPhone at the head of the smartphone herd for more than a decade.
The company has spent heavily to design customized components and manufacturing processes for its devices. That helped Appleâ€™s iPhone to be first to market with new features such as face unlock and advanced augmented reality.
The modems in Apple devices have been an exception to the companyâ€™s usual tight integration. Competitors such as Samsung and Huawei build their phones around chips that bundle the main processor and modem circuitry. That offers cost and space savings. In Appleâ€™s devices the custom proÂcessor and externally sourced modems have been separate components.
Kevin Krewell, principal analyst at Tirias Research, says buying Intelâ€™s modem unit will allow Apple to make integrated processors and modems of its own. As with Appleâ€™s other chip programs, that should provide cost savings and opportunities to create unique new features. â€œApple has long wanted to control its platform completely,â€ he says.
Apple said Thursday that the deal will bring with it 2,200 employees and a significant collection of patents that will swell its total collection related to wireless technology to more than 17,000.
Despite that expertise, Apple will need years to create its first in-house modems, Krewell says. The first 5G iPhone will probably be powered by a modem from Appleâ€™s existing supplier, Qualcomm, the market leader in mobile processors and modems. Patrick Moorhead, founder of Moor Insights & Strategy, estimates it will take Apple three to five years to challenge Qualcomm’s modems.
For a time, Apple tried to gain more control over modems by playing Qualcomm off against Intel. Apple started using Intel modems in some iPhones in 2016.
That strategy foundered this year. Apple had been fighting a complex legal battle with Qualcomm over licensing fees, but it suddenly said in April that it would pay an undisclosed sum to Qualcomm and sign a six-year licensing agreement. The same day, Intel announced that it would not make smartÂphone modems capable of 5G connections.
For Intel, the Apple deal represents the latest in a string of failed attempts to adapt to the mobile era. The arrival of smartphones deflated the PC market that powered the companyâ€™s business. Intel launched a division to market mobile processors but shut it down after poor sales. Modems provided Intel a second shot at the mobile device market. But Qualcommâ€™s lead there proved insurmountable, as both Apple and Intel appear to have ultimately realized.