Apple Unleashes Its Bait-And-Switch Trick on Intel




 

(Bloomberg Opinion) -- 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(1). 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.

Semiconductors have become a development priority for Apple as it seeks both to gain a technological edge over smartphone rivals Samsung Electronics Co. and Huawei Technologies Co., both of which have their own chips businesses, and reduce its bill of materials by bringing more capabilities in-house. Semiconductor research and development is one of the most capital intensive around, and Apple's R&D budget has more than trebled in the past five years.

What's more, by acquiring the Intel business, Apple may again be able to enjoy the same leverage over Qualcomm from which it has benefited in recent years. It's a win-win for the Cupertino, California-based firm and potentially for Taiwan Semiconductor Manufacturing Co., the firm which makes Apple's custom range of chips under contract. It might take some time to catch up, but it means Qualcomm won't have an indefinite clear run.

(1) Ironically, Infineon quit the business because of the intensifying competition with Qualcomm and wariness about becoming beholden to Apple's whims

To contact the author of this story: Alex Webb at awebb25@bloomberg.net

To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

For more articles like this, please visit us at bloomberg.com/opinion

©2019 Bloomberg L.P.

COMMENTS

More Related News

China's Food Is Only Going to Get Pricier
China's Food Is Only Going to Get Pricier

(Bloomberg Opinion) -- Smack in the middle of a trade war with the U.S., China is facing a food shortage that's raising prices for consumers. If officials can't keep inflation in check, President Donald Trump's Twitter tantrums will be the least of their worries.

Apple
Apple's Week Was All About China Fears-And Donald Trump

Apple's Week Was All About China Fears-And Donald Trump

Climate Change Is All Most of Us Have Ever Known
Climate Change Is All Most of Us Have Ever Known

"Undeniable" might be a useful descriptor, but let's frame climate change differently: how this reality manifests itself within the human experience, and how politics are being shaped by that experience. In 2015, the global median age was just below 30, so a changing climate is the only thing most people on Earth have known. Different age groups have contrasting views of a climate of constant change and volatility. A recent Gallup poll separated Americans into three climate change cohorts: "Concerned believers" are highly worried about global warming, think it will pose a serious threat in their lifetime, believe it's the result of human activity, and think news reports about it are...

New leak may confirm the most controversial part of Apple
New leak may confirm the most controversial part of Apple's iPhone 11 redesign

There are so many exciting new smartphones set to be released in the coming months. The Galaxy Note 10 and Galaxy Note 10 Pro are both due in August, Samsung's horrible Galaxy Fold may also launch soon with a slightly less horrible design, the Pixel 4 and Pixel 4 XL that Google just unveiled 4 months early is set to hit store shelves in October, and there are several other new smartphones that will debut between now and the end of 2019. As is always the case, however, no upcoming smartphones have managed to stir up hype that comes anywhere close to matching Apple's iPhone 11, iPhone 11 Max, and iPhone 11R (or whatever Apple ends up calling them).We've seen countless leaks and rumors that...

Why Apple Will Keep Most iPhone Production In China Despite Tariff Threat
Why Apple Will Keep Most iPhone Production In China Despite Tariff Threat

Why Apple Will Keep Most iPhone Production In China Despite Tariff Threat

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Economy

facebook
Hit "Like"
Don't miss any important news
Thanks, you don't need to show me this anymore.