Apple Inc took a major step toward supplying its own smartphone chips by purchasing the majority of Intel Corp’s modem business in a deal valued at $1 billion, the companies said on Thursday.
Under the deal, about 2,200 Intel employees will join Apple, along with intellectual property, equipment and leases. Combined with its existing portfolio, Apple will have 17,000 wireless technology patents, ranging from cellular communication standards to modems, making it a more powerful player in global licensing talks that will likely take place between major 5G patent holders such as Huawei Technologies Co Ltd.
Intel shares rose 5.7% to $55.05 after the news and the company’s report that its earnings beat analysts’ expectations. Apple shares edged up 0.1% to $207.29.
After the deal, Intel will retain the right to develop modems for non-smartphone applications, such as PCs, industrial equipment and self-driving cars.
Modem chips connect devices like the iPhone to wireless data networks, but Apple has always relied on outside suppliers for the part. Intel positioned itself as the sole source of iPhone modem chips over the past year after Apple got into a prolonged legal fight with previous supplier Qualcomm Inc over Qualcomm patent licensing practices.
Cupertino, California-based Apple reached a surprise settlement in April that called for the iPhone to once again use Qualcomm modem chips. Within hours, Intel said it would quit the smartphone modem business.
Apple’s deal with Intel will bolster Apple’s goal to make its own modem chip. Two of Apple’s biggest global rivals - Samsung Electronics Co Ltd and Huawei - already have the ability to self-supply modem chips.
Technology news publication The Information last year reported Apple’s efforts to develop its own modem, but the iPhone maker has never formally acknowledged it. In February, Reuters reported that Apple moved its modem engineering efforts into the same chip design unit that makes the custom processors for its devices, signaling a doubling down on the pursuit of self-designed modem chip.
Apple Chief Executive Tim Cook has also long said the company wants to control its own technological fate, what analysts have called the “Cook Doctrine.”
“We believe that we need to own and control the primary technologies behind the products that we make,” Tim Cook told investors back in 2009.
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