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Apple's In-House 5G Modem Not Expected Until 2025

By Evan Niu, CFA – May 15, 2019 at 2:41PM

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Better late than never.

Cellular baseband modems are among the most complicated pieces of technology that power the mobile world, and Apple (AAPL 0.79%) has already been working on its in-house modem for years. The company's legal saga against Qualcomm (QCOM 3.94%) came to an abrupt end last month, over two years after it started. The settlement included a new chipset supply agreement, as rival Intel (INTC 2.87%) had been struggling with its own development efforts. Intel said it was bailing on 5G modems just hours after Apple and Qualcomm announced the settlement.

It might still be years away, but Apple's in-house 5G modem may actually be right on schedule.

Woman using an iPhone in the rain at night

Apple is expected to launch a 5G iPhone in 2020, powered by a Qualcomm modem. Image source: Apple.

Apple already hinted at its timeline

The Information (subscription required) published a report today that details the yearslong falling out between Apple and Intel over developing a 5G modem that was up to the iPhone maker's standards. Apple chip chief Johny Srouji clashed with his counterpart at Intel, Murthy Renduchintala, over delays and technical problems on at least one occasion, according to the report.

The Information notes that Apple's 5G efforts are taking longer than what many chip analysts had anticipated. Experts had been expecting Apple's 5G modem to be ready as early as 2021, but Apple is now reportedly targeting 2025 to ship its own modem. However, there was another clue that the company had already pushed back its internal timeline: the settlement agreement with Qualcomm. That deal included a six-year license agreement that took effect on April 1, 2019, putting its expiration squarely in -- you guessed it -- 2025. The license agreement also includes an optional extension of two years.

Intel also confirmed to The Information that it is in talks with potential suitors that might be interested in acquiring Intel's 5G intellectual property. Apple is reportedly one of the interested parties.

Getting fed up with Intel

Apple's overall relationship with Intel has only continued to deteriorate in recent years, which could be why the company has also been exploring putting its own chips in Macs as well, potentially as soon as next year.

In recent years, Apple has been increasingly insourcing the development of critical components and core technologies, giving it greater control over its product road map and reducing supply-chain risk in the process. That strategy has been a key reason why research and development spending has been steadily marching higher. Cellular modems and processors are easily among the most important components and relying on Intel for Mac processors put a dent in Apple's first-quarter results.

Gold MacBook Air

Apple attributed declining Mac revenue to Intel last quarter. Image source: Apple.

CEO Tim Cook blamed supply constraints for falling Mac revenue last quarter. "For our Mac business overall, we faced some processor constraints in the March quarter, leading to a 5% revenue decline compared to last year," Cook said on the earnings call. "But we believe that our Mac revenue would have been up compared to last year without those constraints and don't believe this challenge will have a significant impact on our Q3 results."

Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool owns shares of Qualcomm and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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