Apple acquired the bulk of Intel's smartphone business – the part that connects Wi-Fi devices and cellular networks – to the huge $ 1 billion (£ 800 million). The deal means that around 2200 employees will switch to Apple and the company will acquire intellectual property and equipment from Intel.
Sales of Apple phones declined in the first quarter of 2019, and its 5G progress was slow compared to competitors. This acquisition is the company's newest push to control the whole ecosystem for smartphone production, but what does this mean for Apple's further trajectory?
"I do not think someone is really surprised by the acquisition," said Alan Pristle, an analyst at Gartner. "There were not so many obvious contenders to buy the band, and Apple has long been known to want to gain more control over its own technology."
Apple usually relied on Intel and Qualcomm to produce from its smartphone modems, generally divides orders between the two companies. Qualcomm's models have long been recognized as faster than Intel's, and the company is ahead in developing 5G modems that are already integrated into the liking of Samsung's Galaxy Note 9.
However, there is a reason why Apple did not take advantage of these options recently: by April of this year, it was leading a two-year legal battle with Qualcomm. Apple sued the company for blackmailing its position as a dominant player on its market to increase licensing fees while Qualcomm filed a lawsuit against Apple for patent infringement. Finally, the dispute was resolved when companies chose to settle – a decision that was widely attributed to Apple that it is holding on how to derive a competitive modem technology, considering Intel is considered behind 5G.
Apple enters into a six-year global patent licensing agreement with Qualcomm, which includes a company that supplies modems for its phones. Shortly after the deal, Intel announced it was suspending the development of 5G modem parts, indicating a lack of demand from Apple or another major competitor. But while Apple will rely on Qualcomm in the near future, Intel's business modem purchase signals the desire to introduce its entire production cycle. This is something that was first set for the giant in 2009 when Tim Cook announced to investors that the company would create the necessary technology as a point of differentiation with competitors. Some analysts predict that Apple's customized modems can be ready within three years.
"I think we'll see future generations of speakers that have a fully integrated modem," says Pristle. "At the moment Apple is unusual in using a discrete modem – most other smartphone manufacturers use integrated modems. "This means that in Apple phones, the modem is a separate chip and not integrated into the application processor, a design feature that requires more space and power within a phone.
Apple's purchase of Intel unveils the desire to one day understand the reign of modem production itself without having to rely on third-party vendors. But given Intel's lagging Qualcomm in the modem, the acquisition will allow Apple to compete on this frontline? "The acquisition is necessary but not enough," said Jeff Blaber, vice president of research at CSS Insight. "It will still take Apple's years to create a modem capability that can compete with Qualcomm. What the deal with Intel is doing is to reduce development time by adding engineering resources and put it in a stronger negotiating position as far as licensing is concerned. "The modem chip development is incredibly intense, requires a huge injection of capital, as well as the highest engineering talent, years of R & D investment, and an impressive portfolio of intellectual property.
Apple uses this autonomous approach to creating processors for smartphones and tablets. The iPad, launched on the market in 2010, contains the first processor developed by Apple, A4. Custom-made chips components have since been used to power features such as Face ID, Touch ID data, and step tracking technology. For example, when developing self-take technology, an in-house team created a customized chip display that will illuminate a bit three times more than normal for the iPhone 6S. This approach is quite unorthodox in smartphone business, where companies usually rely on a network of third-party vendors to gather the guts of their smartphones, even though Samsung is also a major chip maker.
Apple has signaled its desire to create its own modem chip for some time, with reports earlier this year that the company has moved its engineering chip engineering efforts from its supply chain to the group of its own hardware technologies. The company has facilities for building and testing chips in Cupertino, California and Hertzia, Israel, and an increasing number of modem engineers are also poachers from Qualcomm in recent years.
Acquisitions strengthen Apple's manufacturing capabilities. More recently, the company bought part of the European chip maker Dialog Semiconductor in an effort to bring more of its silicon design. The deal covered $ 300 million (£ 242 million) to license some Dialog technology, acquire 300 engineers and control some assets. Another $ 300 million has been earmarked for Dialog's products to buy over the next three years.
One billion dollars is a controversial pocket change for the hungry giant, set on top of a $ 248 billion (200 billion pound) cash pile. But in spite of its revenues and cash reserves, downsizing other smartphone companies, the technology giant is lagging behind. While at the end of 2018, Apple seems to be on its way to grab the largest share of Samsung's global smartphone market, since then it has slipped third in the back of Huawei (who has suffered from its own problems in the past six months) . The company also lags behind the development of 5G handsets. The launch of the Apple 5G phone is being charged at the earliest next year, while others, including Samsung, Huawei and Motorola, have already launched 5G phones. However, when considering how badly this may be for Apple, it is important to keep in mind that Apple has rarely led the charge when it comes to connectivity: it has not launched the first 3G or 4G phone but has nevertheless managed this time to climb to the most valued company in the world.
But while it lags at the moment, Apple is playing the long game. "It's about taking control of a very costly component that has enormous implications for the system level in terms of productivity and consumer experience," says Blaber. "By embarking on its own developments, Apple can optimize, reduce costs and potentially increase margins." However, designing all of this makes sense only while Apple continues to be one of the world's largest phone manufacturers. The company can not underestimate the importance of staying ahead of the curve, especially in this vulnerable time.
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