Intel rarely talks about its modem business, but sometimes it was stressed that it has a key customer that drives an incredible amount of volume. To our knowledge, Intel had to invest some $2 billion a year to keep the development catch up phase with Qualcomm, and the Apple deal wasn’t enough to cover those costs. Some of this money came back via products sold to Apple, but this was nearly not enough to make a positive balance sheet.
Sudden was not so sudden
The sudden announcement was not unexpected, as Intel has been toying with the idea to stop its modem efforts for a while. Of course, Apple will be all over wanting to hire some of the vital modem engineers as it did steal some key modem designers from Qualcomm in the past. The modem is a team effort rather than one man going to Apple from Intel story.
Missing the 2020 phone deadline was a big blow, and despite having a big chance to bid and win at least piece of the 2021 iPhone cake, it didn’t seem like a great idea. Intel’s Bob Swan CEO was a CFO, and the company just hired another CFO from Qualcomm - George S. Davis. We have a feeling that these guys are quite skilled with balance sheets.
5G design challenges
Making a mmWave smartphone size antenna and RF would be a tough challenge for Intel. That was probably one of the most complex part of the design that was bothering Intel and Apple. It is clear now that Intel wanted to walk away from the unprofitable project and focus on things that make it money.
Intel leads the data center and PC market, and this won't change anytime soon. Don’t let AMD’s wishful thinking gets you carried away but this is not the time to evaluate this further.
Snapdragon X55 / X60 modem
The Snapdragon X55 modem and its successor are designed with Apple in mind. The development of these 5G chips started way before the legal battle, and both sides always knew that there is a high probability of a settlement down the road.
Qualcomm had better 5G technology, and Intel would have a hard time catching up and competing on a technology level. This is why it walked away as it was clear that Apple will have a solution for its 2020 5G phones.
The Fortune article from April 2016 claimed that Intel lost $7 billion in 2013 and 2014 before being rolled into the larger client computing group in 2015. After, it stopped reporting specifics about modems as it was better to keep things hidden and buried.
The numbers were piling up and Aicha Evans, an EVP and general manager of mobile, who was driving this effort.
Intel exec confirmed losing money on modem
Aicha told lawyers in the FTC trial:
"You are satisfied with 40 to 50 percent margin, understanding that sometimes it's higher. That's why I used the word "satisfied." Sometimes it's lower, but that's a good balance."
However in 2016 and 2017 even with Apple iPhone 7 and later iPhone deals, Intel never got to the 40 to 50 percent margin that would help to keep that business healthy.
Remember, Intel had to walk away from smartphone SoC chips as it was not getting any traction, Microsoft acquired Nokia to try to salvage its mobile OS and failed, and there are many other examples. Nvidia acquired Icera and drove it to the ground as the 4G soft programmable tech never really worked.
As Marta Stewart likes to say, Intel’s walking out from the smartphone 5G business is a good thing.
