The Aftermath: Where Do Qualcomm, Intel & Apple Go From Here?
A battle stretching across the smartphone industry and involving core business and legal issues -- and ensnaring three of the biggest technology companies in the world -- ended abruptly yesterday when Apple said it will use chips from Qualcomm in its iPhones. Hours later, Intel said it will discontinue its 5G smartphone modem business.
Although none of the companies would provide financial details around the developments, billions of dollars are directly tied to this week's actions, and billions more are at stake in the nascent but potentially explosive market for 5G.
However, what's unclear are the events that led up to this week's news. Did Intel warn Apple that its 5G products wouldn't be ready for prime time, thus pushing the iPhone vendor to reluctantly ink a deal with Qualcomm? That's certainly possible, given global operators' accelerated 5G rollout efforts. Or did Apple finally blink in its negotiations with Qualcomm, given its desire to compete with the likes of Samsung in 5G smartphones? Or did Qualcomm manage to develop an 11th hour offer that was too good for Apple to refuse?
Based on how quickly Intel made its announcement -- that it would "exit the 5G smartphone modem business and complete an assessment of the opportunities for 4G and 5G modems in PCs, internet of things devices and other data-centric devices" -- it's reasonable to assume that Intel ultimately laid the groundwork for yesterday's developments. But whether Intel's 5G products were delayed or whether there were other issues involved remains to be seen.
Regardless, the global smartphone market has reordered itself: Apple has returned to Qualcomm as a customer and silicon giant Intel is re-evaluating its 5G ambitions. But what will happen next?
For Qualcomm, yesterday's news represents perhaps the clearest corporate victory -- for any company in any industry -- in recent memory. The San Diego company's entire business is predicated on its ability to help develop new technologies (like 5G) and then sell products (like smartphone modems) and license patents against those technologies. Qualcomm is widely regarded to have done just that, having recently announced its second-generation 5G modem alongside a long and growing list of 5G smartphone customers.
The company's agreement with Apple also represents a welcome bit of news for Qualcomm's leadership, who have been buffeted in recent months by a series of blows. The company did manage to fight off a hostile takeover attempt by Broadcom -- with the aid of President Trump -- but Qualcomm has suffered through a public round of layoffs and the collapse of its attempts to purchase automotive silicon vendor NXP.
"Today is a great day for @Qualcomm and for the wireless industry. My heartfelt thank you to our hard working and very talented employees and everyone that has always supported us and believed in what we can do," tweeted Qualcomm's Cristiano Amon.
Next up for Qualcomm? A possible patent settlement with China's Huawei, according to analysts who spoke with Reuters.
For Apple, its rejection of Intel and embrace of Qualcomm appears to be a setback for a company that had vehemently argued against Qualcomm's patent licensing practices. In its initial $1 billion lawsuit against Qualcomm filed two years ago, Apple contended that Qualcomm was unfairly gouging patent licensees like Apple -- an argument bolstered by investigations into Qualcomm's practices by multiple governments and agencies around the world.
But industry observers continue to argue that Apple may have a long-term plan beyond Qualcomm: "IMHO Apple will have its own radio chipset in 6 to 8 years coinciding with the length of its licensing deal with Qualcomm. Apple has an amazing phone processor solution and is doing its best to repeat that with the radio," tweeted Recon Analytics' Roger Entner.
That outlook certainly aligns with Apple's reported efforts to hire 5G experts out of Qualcomm's San Diego headquarters.
Interestingly, Jim McGregor at Tirias Research wrote that it may have been Apple's interest in developing its own 5G modem that ultimately led to Intel deciding to exit the business this week, given that Apple is Intel's only customer and Intel may have been wary of investing too much effort into a product that its only customer was bent on replacing.
In the near term, though, reports indicate that Apple's agreement with Qualcomm paves the way for the company to release a 5G iPhone in 2020; Japan's Nikkei reported that Apple was concerned Intel wouldn't be able to meet that goal, thus forcing Apple into Qualcomm's arms this week.
For Intel, the company's withdrawal from the 5G modem market stands as a corporate black eye that is only exacerbated by the fact that this is the third time Intel has backtracked from mobile phones. As noted by EE Times, Intel bought DSP Communications for $1.7 billion in 1999 to chase the mobile phone market, but then sold that effort to Marvell in 2003. Intel tried again in phones in 2010 when it acquired the wireless assets of Infineon Technologies for $1.4 billion, but mostly halted those efforts in 2016.
So what will Intel do with its 5G smartphone modem business now? "The real question is what happens to the modem group @Intel. Keep it and focus on IoT or sell it off quickly," tweeted McGregor of Tirias Research.
A company representative hinted that Intel might provide more color on the topic next week in conjunction with the release of its quarterly earnings. Intel also made clear it would continue to invest in its 5G network infrastructure business, where it has made a concerted effort to work with the likes of Nokia and Ericsson.
Finally, beyond the Qualcomm/Apple/Intel drama, Tirias' McGregor argued that the resolution of Apple's lawsuit against Qualcomm has larger implications for the technology industry in general.
"The settlement is a huge win for the U.S. patent system and all IP holders because one of the key arguments in Apple’s lawsuit, and implied in the FTC’s lawsuit, is that non-essential patents are worthless. In the recent civil case linked to the first ITC case, a jury found that just three of Qualcomm’s patents were worth $1.40 for each handset using the technology. That’s just a small fraction of Qualcomm's 140,000+ patent portfolio, which is primarily non-essential patents," McGregor wrote in Forbes. "An Apple win on these assertions would have made it easier for licensees to void licensing contracts and devalue patents of all U.S. IP holders, not just in the wireless segment or tech industry. Imagine a medical patent being deemed worthless because it was not directly tied to saving a human life. The entire U.S. IP system can breathe a sigh of relief."