Apple seeks new front in Qualcomm war via Intel

NEW YORK: Apple is seeking a new front in its ongoing war with Qualcomm over smartphone profits. The iPhone maker hopes to combat maturing sales by making more components in house. Buying Intel's modem-chip unit, which may go for over $1 billion according to the Wall Street Journal, could give it a technological edge while avoiding costly royalty payments to Qualcomm.

As tech products mature, the pace of improvement slows. People tend to replace their gadgets less frequently and focus more on price. The declining fortunes of most PC and TV makers over the past two decades are a warning of what could be coming for smartphone makers.

The $950 billion Apple is already feeling the pinch. Its iPhone revenue in the last quarter was down 17% from the same period a year ago. The company's proprietary software may allow it to avoid price wars, as customers pay up to stick with a familiar operating system. Designing more components in-house can also help differentiate Apple products from the competition and goose sales.

Under boss Tim Cook, the company has already been designing its processors for years. That enables Apple to tie software and hardware together, allowing it to maximize processing speed while minimizing power use. The upfront costs of this strategy are high, but Apple can amortize the expense over hundreds of millions of units.

Designing its own modems in-house could have a similar effect. Moreover, it would mean less money for Qualcomm and more for Apple. The companies ended a two-year legal battle over royalties in April, and although terms of the deal haven't been undisclosed, analysts estimate Apple is now paying nearly $10 per phone to the outfit led by Steve Mollenkopf.

Intel lost money for years while trying to produce its own modems, and decided to abandon the effort given Qualcomm's big lead in components for the next generation of 5G handsets. There's no guarantee Apple would be any more successful. But the patents and engineers the company would acquire would help it compete. At the very least, it should strengthen Apple's bargaining power the next time it sits down with Qualcomm. And the mooted price is less than 2% of Apple's expected profit this year. That makes modems a battle worth fighting.

CONTEXT NEWS

- Apple is in advanced talks to buy Intel's phone-modem unit, the Wall Street Journal reported on July 22. Apple could pay more than $1 billion for the associated patents and staff.

- Apple agreed in April to a multiyear license and modem-purchasing agreement with Qualcomm. On the same day, Intel said it would exit the business of making 5G modems. Apple uses current generation 4G modems from Intel in its phones.

- The chipmaker bought its smartphone-chip business from Infineon Technologies in 2011 for $1.4 billion, but the unit has lost about $1 billion annually in recent years.