Why Apple’s Purchase of Intel’s 5G Smartphone Modem Business is Strategic

by Jim Lundy

Smartphones are not enough in tech today—they are becoming a commodity. There is a big shift coming with 5G and Apple, one of the largest tech vendors in the world, is pretty dependent on a third party Qualcomm for modems, with which it now has a multi-year supply deal for 5G kit. However, due to what others are doing, it is not enough.

Given the integrated supply chain that is beginning to emerge with Samsung and Huawei, Apple’s deal for Intel’s modem chip business has significant ramifications in both the short- and long term. The $1 billion deal was officially announced today, and is expected to close in Q4 of this year. This blog will explore why Apple and Intel’s deal is a necessary step to ensure it can continue to compete against Samsung and Huawei.

5G Is The Future of Connectivity

With the speeds of 5G rivaling native wifi speeds, 5G will change our world and the world of vendors that sell phones, PCs, and other connected devices. New markets will emerge and 5G modems will be in high demand as the 5G infrastructure comes online over the next ten years.

Short-Term Reasons Behind The Deal

The short term reason why Apple is buying Intel’s modem business is simple—it needs more than one supplier for 5G modems. It is dependent on Qualcomm and given Apple’s business, one missed shipment of modems and it misses a quarterly earnings report. The other reason is that it gains valuable IP that it can use to eventually renegotiate its deal with Qualcomm. However, the short-term lens is not enough justification to do the deal.

Competitive Reasons For Having Native 5G: The Samsung and Huawei Angle

The competitive reasons alone are enough to make Apple move quickly. That is because both Huawei and Samsung, arch rivals of Apple in the smartphone business, are in the process of rolling out their own 5G modems (see Table 1). They can use their supply chains to cut prices and hurt Apple, which has not been known for low prices on the iPhone as of late.

Vendor	Primary 5G Modem Supplier
Apple	Qualcomm
Huawei	Huawei
Samsung	Samsung

Table 1. Only Apple depends on a third party  for its 5G modem.

Strategic Implications for The Need for Native 5G

The larger and more strategic reasons for Apple’s move to have native 5G has to do with the growth of 5G and the implication for connected devices that goes far beyond its current smartphone and Mac PC business. Yes, it will want to put 5G modems in its Macs, but given Aragon’s estimate that 5G will be deployed for nearly everything, from homes to cars to buildings, the demand for 5g modems is expected to sky rocket as the use cases come online. Apple’s acquisition of Intel’s smartphone modem business is a smart move, and should help propel it through the oncoming era of 5G.