Given everything that has been announced and reported to date, it's not too surprising that Apple (AAPL) -- according to a new Wall Street Journal report -- is in "advanced talks" to buy Intel's (INTC) smartphone modem business for $1 billion or more.
In April, within hours of Apple (by far Intel's biggest modem client) and Qualcomm announcing a patent settlement that was accompanied by a "multi-year chipset supply agreement," Intel announced it was axing its 5G smartphone modem plans. Less than two weeks later, the WSJ reported that Apple had talked with Intel about buying its smartphone modem business, albeit while adding that talks had recently cooled.
Even before April's events, there was a fair amount of evidence that Apple had stepped up its modem R&D efforts. In February, Apple announced it was opening new offices in Qualcomm's hometown of San Diego, and concurrently posted a number of job openings for wireless engineers in San Diego. Reuters, meanwhile, reported that Apple had moved its modem engineering team from its supply chain unit to its core hardware technologies unit.
Developing competitive smartphone modems is neither cheap nor easy -- one only need look at Nvidia (NVDA) , Broadcom (AVGO) and Marvell Technology (MRVL) , all of which axed their cellular modem businesses after running up a fair amount of red ink. But there's a clear payoff for Apple if it can succeed.
By developing its own modem, Apple could create system-on-chips (SoCs) that feature both an A-series app processor and a cellular modem. That would translate into board space savings.
In addition, there are bound to be cost savings. Between sales of iPhones and iPads/Apple Watches featuring cellular modems, Apple will probably be shipping over 250 million devices containing 4G/5G modems in future years. Even after accounting for its R&D costs and a slight uptick in its chip manufacturing expenses (payable to Taiwan Semiconductor (TSM) ), Apple could easily save over $1 billion per year.
In that context, the idea of Apple spending $1 billion or more to strengthen its modem R&D efforts has some logic to it.
To be sure, it could still be a few years before iPhones containing Apple-designed modem begin shipping. Developing 5G modems whose performance is at least within striking distance of what Qualcomm, which continues investing heavily in 5G R&D, can deliver is bound to take some time.
Moreover, as tech analyst Patrick Moorhead noted, Apple might also need to invest in developing 5G RF modules covering millimeter-wave (mmWave) spectrum bands for devices containing its own modems, given that (as Qualcomm has been eager to mention) there are technical advantages to having an end-to-end 5G solution that extends from a phone's modem to its antennas. Notably, Apple analyst Ming-Chi Kuo has said his firm believes Apple's settlement with Qualcomm gives it access to 5G modem source code that it could use to develop its own 5G RF modules.
While developing competitive 5G modems (and perhaps 5G RF modules as well) wouldn't be an easy task for Apple, the company has pulled off a number of difficult chip engineering projects in recent years. One only has to look at its A-series processors, along with the Apple-designed CPU cores, GPUs and AI and image co-processors that go inside of them, for proof.
This track record provides reason to think Apple could eventually add a home-grown 5G modem to its list of successful in-house projects -- particularly if the company can have access to Intel's modem patents and engineering talent to help its cause.