Yesterday evening, Apple (NASDAQ:AAPL) officially confirmed that it would be acquiring "the majority" of Intel's (NASDAQ:INTC) smartphone modem business. Intel had been trying to find a buyer for its modem intellectual property (IP) for the past three months after announcing its exit from the 5G modem market, a withdrawal caused by the Mac maker's surprise settlement with Qualcomm after numerous missteps on Intel's part in developing a competitive 5G modem.
Rumors have been swirling all month that an agreement was imminent. At $1 billion, Apple just got a sweet deal.
Intel's modem business was losing an estimated $1 billion annually
For that price tag, Apple will be acqui-hiring roughly 2,200 employees, in addition to IP, equipment, and leases. When combined with its existing wireless patent portfolio, the deal will bring Apple's total count to over 17,000 wireless technology patents. If it wants to, Intel will still be able to develop modems for other product categories like PCs, cars, and Internet of Things (IoT) devices.
Apple chip chief Johny Srouji said in a statement:
We've worked with Intel for many years and know this team shares Apple's passion for designing technologies that deliver the world's best experiences for our users. Apple is excited to have so many excellent engineers join our growing cellular technologies group, and know they'll thrive in Apple's creative and dynamic environment. 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.
Several analysts told Business Insider that $1 billion was a steal for what Apple is getting, as Intel had initially expected to fetch a few billion dollars from the sale. "At $1 billion, they are basically giving the IP away," Bernstein Research analyst Stacy Rasgon told the outlet. Enderle Group analyst Rob Enderle noted that Apple was in a far stronger bargaining position than Intel, which was desperate to unload the segment.
Wedbush analyst Daniel Ives estimates that Intel's modem business was losing $1 billion every year. Those losses aren't too relevant to Apple, which has no intention of selling 5G modems to other companies. As long as it can develop a viable modem to include in future iPhones, $1 billion means little for the richest company on the planet.
Apple is targeting an aggressive 5G modem timeline
There have been many conflicting reports regarding when Apple's in-house 5G modem might be ready to ship. The Information reported in May that the baseband chip was running behind schedule and wouldn't be ready until 2025, while widely followed Apple analyst Ming-Chi Kuo recently estimated that the company's offering might ship in 2022 or 2023.
Of course, the deal should accelerate Apple's timeline, and the Cupertino tech giant is now targeting as early as 2021, according to Reuters. Intel was originally hoping to have its 5G modem ready for Apple in 2020. Apple would slowly start incorporating its own 5G modem into products by piecemeal, gradually phasing out Qualcomm's modems. "There's a fierce desire [at Apple] to have Independence, but they also realize it has to be done responsibly," Reuters' anonymous source said.