Apple pulls a bait-and-switch on Intel

By Bloomberg | 13 Jun 2019 at 11:31hrs
It risks becoming Apple Inc.'s signature bait-and-switch move.

After years of developing technology with a supplier, the iPhone maker pulls the plug on the collaboration. It then buys up that business, which has limited prospects without Apple's custom, and continues the development in-house.

It happened last year with Dialog Semiconductor Plc, the maker of power-management chips. This time it's the turn, remarkably, of Intel Corp., the world's second-largest semiconductor maker.

Apple is in talks to acquire Intel's modem unit, technology website The Information reported on Tuesday. The news comes just two months after Apple said it would return to using those made by chipmaker rival Qualcomm Inc. – it exclusively used Intel modems in the most recent generation of iPhones. The day after the Apple-Qualcomm rapprochement, Intel announced its intention to quit the mobile connectivity business.

To be sure, Apple may be providing something of a soft landing for Intel. The Santa Clara, California-based company has invested billions in developing modems since acquiring the business for $1.4 billion from Infineon AG in 2011. Its revenue from adjacent client computing products, which includes the modems business, jumped by 33% to $3.8 billion in 2018. That represented 5.4% of total revenue.

Despite all its spending, Intel still lagged Qualcomm technologically. That in turn prompted tensions with Apple, according to The Information. Getting some remuneration for its pains will be a relief. It's reasonable to expect Apple to pay more than the $3 billion it spent acquiring Beats Electronics in 2014, its biggest-ever acquisition.

But you can't blame Intel if it feels a little used. As with many companies, Apple prefers to have a multi-supplier strategy where possible: playing them off against one another helps eke out lower component prices.

Intel's modem presence gave Apple a powerful bargaining chip, if you'll excuse the pun, in its two-year legal wrangle with Qualcomm over licensing fees. The moment that dispute was settled in April, letting the two firms resume their collaboration, Intel's strategic usefulness waned.



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