Amid iPhone crisis, Apple may have restarted talks to buy Intel’s modems

As iPhone sales continue to fall, Apple is reported to be interested in increasing its control of future devices by acquiring Intel’s modem business.

Intel, of course, shut down its 5G modem activities following the loss of Apple’s business. The iPhone maker, apparently dissatisfied with the progress of Intel’s 5G chip, was forced to settle its long-running legal battles with Qualcomm and return to that vendor for the forthcoming 5G iPhone. But that will have held back the progress of the new smartphone, potentially leaving Apple with a choice of delaying it, or launching it with a modem that is not quite cutting edge.

The loss of market share, and general mystique, for the current iPhones will make the decision a very important one for a firm which is so over-reliant on one product. According to analysts at IDC, Apple’s market share in Europe was down to just 23% in the first quarter of 2019, partly because of the halo effect, for leaders Samsung and Huawei, of having launched their 5G flagships already.

“In brands, Huawei continued to make incremental advances, and so did Xiaomi, while Apple had a tough quarter, with its 23% market share across Europe the lowest Q1 result in five years,” said Marta Pinto, research manager at IDC. “Shipments have slowed as consumers hold on to devices for longer, Apple has been challenged with its latest devices, and Chinese manufacturers have been making strides each quarter.”

Slower iPhone sales impact on the whole supply chain. Wamsi Mohan, an analyst at Bank of America Merrill Lynch, said that Broadcom’s warning of a weaker outlook than expected for 2019 “could indicate continued weak iPhone units … Apple has been significantly reducing channel inventory of iPhones (down ~12m units in C1Q19 and approximately 3m units per month in April and May),” he wrote. Broadcom’s reduced revenue forecast “potentially suggests 5m to 10m fewer iPhones for the year, based on an estimated $400m reduction, assuming inventory build of 5m to 10m units.”

Another factor in Broadcom’s warning was certainly the effect of not being able to sell to Huawei because of the USA’s current embargo. That might hurt Huawei’s handset business in western markets and so benefit Apple, though the trade wars might make the Chinese business even more challenging for a US provider.

Amid all this uncertainty and change, Apple’s instinct will certainly be to increase its self-sufficiency and its control over its supply chain and the quality and availability of its key components; while reducing its reliance on Qualcomm. Having its own modem would enable it to create a fully integrated system-on-chip comprising a processor, modem and GPU (another part Apple has brought inhouse after severing ties with former supplier Imagination Technologies). This would make the iPhone more competitive in price, power consumption and performance terms.

One way to do that might be to acquire part of Intel’s modem chip business. Though that unit had not delivered something up to Apple’s demanding standards as yet, it would be easier and cheaper for the iPhone maker to develop its own modem from an existing platform, rather than taking on the gargantuan task of creating one from scratch (the failure of Intel and several other chip companies, such as Nvidia, in this field indicates just how hard it is to challenge Qualcomm in its core market).

Reports last week indicated that Apple was in talks to buy the German-based element of Intel’s modem business, which is the bulk of the unit, having been acquired from Infineon for $1.4bn in 2011. This would not be a straightforward deal, since Apple will not be interested in the existing merchant business – the Intel division is a top three modem supplier, though mainly focused on lower end devices rather than flagships like the iPHone. Having ended its 5G efforts, Intel had implied it would exit the whole modem space, but winding down such a big supplier will not be easy, unless another buyer can be found for the parts Apple does not want.

Previous talks for Apple to buy Intel’s 5G modem alone reportedly broke down in April, shortly after the iPhone maker settled with Qualcomm.