Apple Buys Intel's 5G Modem Unit For $1 Billion, 2,200 Employees Join iPhone Maker

In a strategic move, iPhone maker Apple agreed to buy the majority of Intel’s smartphone modem division. The deal is significant as it offers a road map to Apple’s 5G iPhones plan with own modem.

The Apple news of $1 billion acquisition of Intel's smartphone modem business will also involve absorbing 2,200 Intel employees along with access to intellectual property connected to Intel 5G modem, equipment and leases, said an official announcement.

It will help Apple to assert end-to-end control on its devices.

Cumulatively the deal will also empower Apple a combined volume of 17,000 wireless technology patents. The deal’s closure is expected in the fourth quarter of 2019.

“Today we announced the sale of the majority of our 5G smartphone modem business to Apple,” Intel CEO Bob Swan said.

Apple also expressed excitement over “many excellent engineers will join our growing cellular technologies group,” according to Johny Srouji Apple’s Senior Vice President for Hardware Technologies.

“They, together with our significant acquisition of innovative IP, will help expedite our development on future products and allow Apple to further differentiate moving forward,” he added.

Beginning of a paradigm shift in modem sourcing

Apple was a customer of Intel modems for iPhones that connects to networks operated by carriers such as Verizon and AT&T.

In late April, Intel announced its intent to leave the smartphone modem market business because it was not seeing “clear path to profitability and positive returns.”

Under the acquisition deal, Intel will have the liberty to develop modems for devices that are not smartphones and include PCs, connected industrial devices and autonomous vehicles, the companies said.

Goldman Sachs was the deal’s advisor for Intel.

Apple’s contract with Qualcomm and indigenous 5G efforts

Despite the deal, Apple will continue to buy Qualcomm modem chips for some more time. Apple’s recent settlement with Qualcomm on patent licensing mandates the iPhone maker must buy Qualcomm chipsets for some more years.

That implies Qualcomm modem chips will dominate future iPhones as well including versions that support 5G networks.

That is why analysts note an exclusive Apple-made 5G modem inside the iPhone 11 in 2020 looks like a remote possibility.

Even the prospect of having an in house modem for the iPhone 2021 will be a bit far-fetched.

However, Apple will release a 5G iPhone in the interim and it may have Qualcomm chip inside, most probably. Even rival Samsung’s 5G phone offering Samsung Galaxy S10 5G adorns a Qualcomm modem chip inside.

Apple is earnest in building its 5G chipset, according to media reports and will continue to amass intellectual property. The Intel deal is a critical milestone in Apple’s effort to become autonomous in modem chips.

Analysts see it as a long-term, multi-year game plan considering the technology’s complexity.

“Apple knows it’s not another chip — it’s strategic intellectual property in a connected device,” commented Prakash Sangam, founder of Tantra Analyst to CNBC.

Being a key strategic piece of IP that is not in Apple’s stable it makes sense to own it, the analyst added.

Intel stock jumped more than 6 percent in after-hours trading while Apple stock was flat post the announcement.