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Apple to acquire the majority of Intel's smartphone modem business (apple.com)
219 points by kennethfriedman on July 25, 2019 | hide | past | favorite | 70 comments

Intel has a history of acquiring company and then sell it for less ( e.g McAfee ). The Wireless Modem was acquired from Infineon in 2010 for $1.4B. It had 3500 employees then, compared to only 2200 moving to Apple now along with lots of Wireless patents that Intel has contributed to LTE and 5G NR over the years. The $1B sounds like a very good deal.

My guess is that the recent Intel BaseBand modem design are worth very little to Apple. It is based on Intel's 14nm ( and 10nm for the 8160 5G NR Modem ) , since Intel is winding down their Custom Foundry, and Apple has a much better relationship with TSMC, the chance of Apple fabbing their Modem with Intel is close to Zero. The last TSMC Intel Modem was Intel XMM 7480 used in iPhone 8 / X.

But even if the Modem is literally worthless, I would have thought the patents are worth a little more than $1B?

I am wondering if part of the deal is making sure Apple sticking to x86 and Specifically Intel's x86 CPU on the Mac for at least another 5 years. No ARM or AMD Mac.

Edit: On another note. The Honor 9x [1] is selling in China for $280 VAT inc. If that is $250 excl VAT, the iPhone XR selling at $750 is 3x the price. Apple got a lot of explaining to do for the market to justify its price tag. And privacy alone, which is what they are pushing is not enough.

[1] https://www.anandtech.com/show/14667/honor-unveils-9x-9x-pro...

> Apple got a lot of explaining to do for the market to justify its price tag.

If it were down to feature lists and price tags, Apple wouldn't be selling very many phones. It seems Apple might be explaining itself in a way that doesn't resonate with you, which is which is fine.

> I am wondering if part of the deal is making sure Apple sticking to x86 and Specifically Intel's x86 CPU on the Mac for at least another 5 years. No ARM or AMD Mac.

I suspect that Apple had a lot of leverage in this negotiation, since they were the main ones interested in using Intel's modems as leverage against Qualcomm. So Intel's modems are more valuable to Apple than they are to other players, including Intel. But I don't know anything.

> Intel's modems are more valuable to Apple than they are to other players, including Intel

That implies that Intel has the leverage. Intel's BATNA is to just let the modem IP rot. It's a sunk cost. They can just walk away from the negotiating table, and they'll be choosing to get $0 + ($small * potential of selling to anyone else = $ε) instead of $1B.

Apple's BATNA, meanwhile, is for Qualcomm to steamroll them and force them into expensive concessions across the board, and they're willing to pay through the nose to avoid that. Their choice is between $1B to intel and likely far more than $1B to Qualcomm.

Yes, and Apple still has lots of cash on hand, >$200billion. $1billion is a small price to pay in order to solidify a strong bargaining position with a multi-billion dollar vendor contract that has been a legal and financial thorn in their side. Especially given their long term roadmap for i-devices has been one of gradual vertical integration.

If Intel hadn’t sold to Apple, they would have had to pay out severance packages to 2200 engineers, plus break costs on whatever ongoing contracts existed (leases etc). So the comparison isn’t +$1B against $0, more like +$1B against -$1B (or at least a decent fraction of that), with the costs growing every day that the negotiations continued and the likelihood of a sale to anyone else continuing to drop (from a very low base).

>If it were down to feature lists and price tags, Apple wouldn't be selling very many phones. It seems Apple might be explaining itself in a way that doesn't resonate with you, which is which is fine.

I wish it was just the Internet, but increasingly I have had people complaining about iPhone's prices in Real life, and they are not in the Tech Circle. A few days ago the podcast from Macobserver on Apple's prices had a section on it as well, more people are questioning the prices, especially when they have something else to compare to.

I could paid double the price simply because of iOS. But 3x is a little hard, and I cant explain to friends why is Apple so expensive either.

> 3x is a little hard, and I cant explain to friends why is Apple so expensive either.

How do you explain to them that Huawei's own P30 Pro sells for several times what their Honor 9x sells for? Does Huawei need to explain that to the market too? We've seen high spec midrange phones that sold for a fraction of flagship prices for years but Apple has never attempted to go after that part of the market.

And I imagine if you wanted to you could compile a long list of iphone selling points besides privacy. For example, my wife's nearly two year old iphone 8 has a ST Geekbench score that's 50% higher than the Honor 9x (4228 vs 2832). Maybe that's part of why Gazelle will pay more for her phone today ($289, 64 gb) than the 9x retails for.

The problem is that Apple intentionally crippled the XR so that they could more easily upsell people to the XS.

This punishes users who want to replace their iPhone 7, since Apple simply doesn't make a good phone in that price bracket anymore.

It's worse than that in my opinion, because Apple's prices have the effect of sort of "giving permission" to other flag ships to also jack up prices significantly. The Galaxy S7 edge was retailed at $779 on release. The comparably positioned s10 plus starts at $999. More with more storage space, though I don't recall if the s7 edge had additional internal storage upgrades like that (it did have user expandable storage though)

Seriously this again.

A product is worth more than just the sum of its physical components. The quality of the apps, consistency of end user experience, integration with my other devices, multi-year support and yes commitment to privacy and security are worth $500 to me. And to hundreds of millions of other people.

Otherwise is a Rolex really worth that much more than a Seiko. Or how about a Ferrari versus the new Corvette.

Rolex, Ferrari, and even Corvette probably all have high prices in part because they're niche items that don't really leverage economies of scale, not as much as lower priced mainstream cars. But I take your point. Though in terms of cars, I probably point to Volvo, their excellent safety features etc., that increase price as a good comparison to the Apple Tax.

I don't disagree with your overall point but in the world of high-end watches Rolex watches _are_ mass produced and leverage economies of scale. I think the latest estimates are around 800,000 watches produced per year by Rolex.

I am wondering if part of the deal is making sure Apple sticking to x86 and specifically Intel's x86 CPU on the Mac

That goes against everything Apple stands for; they will not give up control for any amount of money. The Qualcomm deal was really an emergency outlier.

> And privacy alone, which is what they are pushing is not enough.

Absolutely, it is. Of course, it's not the only point of competition, but if it were, I would still pay the additional amount to not be the product.

Reasonable privacy should be a given. That's all Apple provides. The Chinese brands actually provide negative privacy - that is there's an expectation that they're spying on you. No one gives a damn about real user privacy in the smartphone market. We really need another mobile platform option, since neither iOS nor Android are acceptable from a privacy point of view.

I remember talking to someone about how Intel's acquisitions performed poorly and he pointed out infineon and I shook my head.

You think some ceos should be under a covenant that they can't acquire companies the same way that alcoholics shouldn't drink.

> And privacy alone, which is what they are pushing is not enough.

Apple has the best mobile processors. How does the Kirin 810 in the Honor 9X compare to Apple's A12 or the upcoming A13?

According to Intel's latest quarterly report[1], 2,200 employees is ~2% of their entire employee base. Kinda reminds me how massive these companies are.

[1] https://www.intc.com/investor-relations/investor-education-a...

Apple has a pattern here. Started with CPU's (PA Semi) and moved into flash controllers (AnoBit), GPS (coherent), GPU's (Imagine Tech), and now cellular modems. The prior have been well integrated to give us the latest Axx designs.

It's only a matter of time for the cellular modem to be integrated tightly as Apple takes it in house.

Qualcomm will be pushed out; it is only a matter of time now. Not if; but simply when.

It worries me that this effectively ends up behind the Apple wall and everyone else is stuck with the status quo.

The alternative is Intel dissolving their R&D completely since they couldn't see how the division could ever be profitable. At least with Apple acquiring them there's still some competition left in the field.

Apple does not sell chips to other companies. So competition decreases.

It remains marginally higher competition than the unit folding, which seems to have been the alternative. At least one party has an alternative. And unlikely as it may seem, that party may yet choose to sell to others, which is also better than zero.

Well neither would Intel if they dissolved the unit...

They do sell the chip for lightning connectors to third parties

Also if political winds blow against the FAANGs and pushes for breakups of some sort gain ground, that could take the form of something like compulsory licensing of closely held IP by Apple. Pure speculation of course, but the prospect of competition due to his acquisition is non-zero, compared to the zero of Intel dissolution.

There are 5 or more independent modem developers in China. If you add to that that 5G was mostly a Chinese thing, I can confidently say that at least in 5G space, Qualcomm is nowhere near a monopolist now.

Qualcomm is pretty much an Intel of modem world. Their stuff is quite good, but their commercial terms are beyond a robbery, and you simply don't play in this space if you are a <100m company according to them.

Modems are no rocket science, and QCM made itself the juiciest target for Chinese.

If people have good memory here, at around 2012 Chinese company called Allwinner was steamrolling Qualcomm in its home field - application processors for mobile electronics.

Allwinner's only weak side was poor 3G integration, and they were about to finally solve it with their "phablet" solution with single package ram+soc+3rd party baseband combo.

Then, something strange happened: every mention of Phablet vanished from their website, and a month later they announced some vaguely termed "deal" with Qualcomm, after which a lot of their senior managers quit the company and left China for fancy life in the West...

There is a speculation in Shenzhen that they were basically bought off by Qualcomm.

Now with 5+ more contenders, I doubt they will be able to buy off all of them, especially when Huawei is involved.

> Now with 5+ more contenders, I doubt they will be able to buy off all of them, especially when Huawei is involved

I imagine the Chinese government also has an interest in not allowing the expertise to leave the country

This is, by far, my biggest concern with this acquisition. In markets where the iPhone is the major revenue driver, what incentive will carriers have to optimize their network for non-iPhone modems? I can easily see the US carriers neglecting Qualcomm modems to the point where if you want the best cellular experience, you have to use an iPhone.

A very large number of non-apple cell phones are sold in the US. This doesn't seem like a well founded fear.

That's definitely true, but I suspect that when you filter down to postpaid unlimited data plans (likely the customers with the highest margins), the iPhone's share of the market increases considerably.

That's true, but there is the perspective that iPhone users are more valuable, as they typically spend more money.

Not a large number of high end non Apple phones....

Samsung sells huge volumes of high end phones.

The average selling price of Samsung’s phones is $235. (https://www.sammobile.com/2017/08/02/average-selling-price-s...). Most of their phones are low end.

An average selling price doesn't speak to whether they ship a huge number of high end phones, just that if they do, they ship far more low end phones.

Samsung ships about twice the number of phones as Apple but has a third of the ASP. The conclusion that most Samsung phones are low end is not hard to reach.

But your contract with Verizon or whoever, minus monthly portion paid towards handset, is the same. Not only that, but iOS has a pretty decent install base of older handsets, a significant chunk of iOS's ~45% market share. So even if iOS users did represent higher revenue customers, it would be years and years before optimizing for new intel-derived 5g modems would impact more than a minority of users, while inconveniencing everyone else.

For a currently-possible comparison scenario, are there issues with providers optimizing their networks for qualcom to the detriment of Samsung?

Apple drives the bulk of application sales revenue for sure. They probably represent a large plurality of phone hardware sales. I don't think they represent a sigificant chunk of carrier revenue though. An iPhone contract doesn't make them any more money than a junky Huawei one.

Is the iPhone the major revenue driver for any carrier? What matters to the carrier is the plan they can sell you, not the price of the phone you're using with that plan. I could believe that iPhone users on average have more expensive plans (due to being less price sensitive), but in most markets Android has the dominant market share.

Edit: I suppose carriers are regional, so the iPhone might be the major revenue driver in the US, but Android can't be too far behind. Neglecting 40% of your userbase doesn't seem like good business.

iOS has < 50% market share in the US, and I think that's still where they have their highest market share. There should be no risk of other hardware platforms left as second class citizens under that status quo.

If Apple brought the design/implementation of their modems in house, as they have with much of their chipset design, and as a result Intel ceased pursuing the modem business, because they'd lost their biggest customer, would your concerns be the same?

Yeah, I mean I'm happy there may still be another player in the 5g space, but it's really really unlikely Apple will turn OEM and provide market competition the way Intel might have.

Here's to hoping this succeeds and Apple spins off the company to meet the demand of other manufacturers, similar to how it was involved with founding ARM Holdings.

This seems to be what happened with Apple's acquisition of Primesense, the originators of the old Xbox360 Kinect sensor.

There’s (much) more to the cellular modem market than Intel and Qualcomm.

With this aquisition, this will be apple's second or third office in Munich.

I am really glad, these engineers kept their jobs. More interesting is that Munich has similar sized offices of Apple and Qualcomm now. Their topics’s aren’t really overlapping, but the roots of both companies lie in Siemens. Maybe this also hinders their global success.

I can’t find anything about Qualcomm having Siemens roots. Are you sure about that?

Qualcomm bought some BenQ Mobile (ex-Siemens) patents from HP (Palm), but according to Jobs, these were rather worthless:

Just for the record, when Siemens sold their handset business to BenQ they didn’t sell them their essential patents but rather just gave them a license. The patents they did sell to BenQ are not that great. We looked at them ourselves when they were for sale. I guess you guys felt differently and bought them. We are not concerned about them at all. [1]

Maybe this is what you were thinking about? If there is more, I’d be glad to hear about it!

[1] http://www.project-disco.org/competition/012313-patent-bully...


I am sure.

So Siemens > EPCOS > TDK > Qualcomm/TDK (RF360 Joint Venture)? That is super interesting, thank you!

Which are the other offices? I heard they closed down Metaio after acquiring them a few years back.

More than a modem, they also get a gigantic patent portfolio to fight off Qualcomm's trolling

With the massive settlement with QCOM, Apple's given themselves 6 years to try and develop competing chips which Intel wasn't capable of after many years and multi billion R&D investments. Given they're going to continue using Intel's existing 2,200 staff it's not clear what Apple can bring to the table other than a bigger R&D budget, perhaps they can eek out an edge with their tighter h/w + s/w integration. But as they're taking over the development they must think they can or at least use it as a bargaining chip for more favorable licensing from QCOM.

From a company health and security perspective it makes sense for a company as large as Apple to try and not be beholden to an external company for core technology, so from that perspective given the investment is a rounding error for Apple they might as well continue trying to compete.

Apple can probably bring much better high-level management than Intel. Intel haven't managed to make a success of anything except x86 processors, whereas Apple do well in markets they target more often than not...

While it would represent a novel venture for Apple, they could also clobber Qualcom with the threat of competing as an OEM, threaten to not only vertically integrate, but also to license their work to everyone else, for cheap. I admit it's unlikely they would actually turn OEM though.

Qualcomm is a leader in this space. It’s not clear yet that Apple will be successful in the fight.

They don't even have to be. The truth is that there is not so few 3rd party modems out there, it'd just nobody other than Chinese used them before because of Qualcomm's threat.

Even if they will use that portfolio purely defensively, it will be kind of useful for them

Is Apple finally going to build significant presence in Silicon Forest?

Considering how awful Intel modems are, this is disappointing. I was hoping they would stick with Qualcomm.

Apple did a good job w/ their CPUs. I assume that they are planning to do something similar with their modems.

It is going to be absolutely amazing if Apple manages to turn around what has essentially been a failing business for the last 10 years.

Apple has two major things going for it IMO:

First, they have a huge buyer: themselves. This also means they can closely integrate with the AP and driver folks.

Second, Apple is not Intel. Intel is famously quite bad at managing the development of anything that isn’t a CPU. Apple (or, frankly, basically anyone else) may be able to fix the cultural issues that make it impossible for Intel to build a reasonable non-CPU product.

Aren't Intel NICs considered the best, due to the way it manages interrupts (can't remember the source at the moment but I did read somewhere they were better than RealTek but maybe not necessarily Broadcom)?

Also every Intel motherboard of course has an Intel-developed chipset.

Didn't Intel also develop HDCP which is also in every television and graphics card at this point - though I'm not sure what Intel hardware is behind that.

Intel NICs are indeed good. I suppose that an exception. I don’t know much of the history behind HDCP, but the crypto is a joke.

Interesting things to look up: SoFIA, Puma 6, all the Atom-based phones out there, Larrabee / Xeon Phi. A lot of money has been spend, and the returns have been dubious.

Well, in recent years they've managed to develop reasonably decent integrated GPU's that are perfectly adequate for anyone that isn't using graphics programs extensively or more than (very) casual gaming.

I think the issue was more than Intel was running behind on their roadmap, unable to deliver on the promised schedule. This is what drove the Apple-Qualcomm settlement. But that settlement gives Apple years to work with this acquisition to bring it to "good enough". And their experience in chip design thus far has shown they can shepherd chips through design and implementation that are more than just "good enough".

In that case Apple shouldn’t have bought the remnants of Exponential technology to jumpstart their ARM processor designs.

So basically Apple gets Qualcomm to agree to a settlement for all their lawsuits, then Apple buys Intel's modem business once there's no legal ramifications.

I'd be willing to bet Apple dumps Qualcomm at soon as the multi-year deal is up in favor of their in-house chips.

Well played.

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