Intel exits 5G phone modem business after Apple-Qualcomm settlement

Following Apple’s last-minute patent licensing settlement today with Qualcomm, Intel has unexpectedly dropped out of the 5G modem-making business for smartphones. The Santa Clara-based chipmaker says that it is in the process of assessing its remaining modem-related opportunities for PCs, internet of things devices, and data-focused devices, but intends to continue making 5G network infrastructure components.

Intel CEO Bob Swan suggested that the company couldn’t compete “in the smartphone modem business it has become apparent that there is no clear path to profitability and positive returns.” However, he called 5G “a strategic priority” across the company, and said that it’s reviewing the options for its wireless products and intellectual property — a signal that the company may be looking to sell the portfolio.

As Intel already sells 4G modems, it says that it will continue to provide those products to customers, but does not intend to produce 5G modems for smartphones. The continuation of its existing 4G modem business will enable companies such as Apple to continue producing existing and scheduled products with Intel chips as they begin to transition to competing products.

Today’s announcement brings an abrupt end to widespread industry speculation regarding Intel’s ability to serve as a supplier of 5G modems for Apple. Less than two weeks ago, Intel rebuffed a report that it was facing new problems in its 5G modem development program, calling into question a single-sourced claim that missed milestones were imperiling its supply prospects with Apple.

At the time, Intel told VentureBeat that it still planned “to support customer device launches in 2020 with its XMM 8160 5G multimode modem.” However, the company’s passive denial mirrored a similar situation in 2018, when it shrugged off a report of troubles with its XMM 8060 modem, only to later drop the project in favor of its now-cancelled sequel.

Intel’s modem-making rival Qualcomm had accused the company of conspiring with Apple to undermine its business, claiming that Apple had shared secret and proprietary Qualcomm information to accelerate Intel’s competitiveness in the modem space. Since Qualcomm’s 4G modems routinely outperformed Intel’s in speed, yet Apple used separate modems across different iPhone carriers and regions, Apple held back the top speeds of Qualcomm parts so that devices made with Intel modems would deliver similar performance.

5G added all new levels of complexity to the modem engineering process. While Qualcomm is already working on its third commercial 5G modem, Intel reportedly faced power efficiency and cooling challenges with its first and second 5G modems. Additionally, the use of millimeter wave, sub-6 GHz, and lower-frequency radios in 5G devices make both individual and multiple antenna designs incredibly challenging.

In recent months, the company clearly began to focus on 5G networking components that wouldn’t be as thermally constrained as smartphone chips, while saying little about its relationship with Apple. Apart from its plan to sell iPhone modems, its most noteworthy 5G deal was with T-Mobile to supply unspecified low-frequency 600MHz components to the “Uncarrier.”

Intel’s exit from the 5G smartphone modem business leaves only four players in serious contention: Qualcomm, which holds the vast majority of 5G modem contracts, Galaxy phone maker Samsung, Chinese telecom giant Huawei, and smaller Taiwanese budget chipset maker MediaTek. While Apple has recently emerged as a potential modem maker, the company’s settlement today with Qualcomm included a six-year chip sourcing agreement plus a two-year extension option, suggesting that it likely won’t be ready to fully supply its own needs for at least half a decade.

On the second day of the federal trial between Qualcomm and Apple, the companies unexpectedly announced that they have settled their wide-ranging legal disputes and agreed to a global patent license. Apple says that it is making an unspecified payment to Qualcomm, and will consequently be able to source Qualcomm chips for six years effective April 1, 2019, with a two-year extension option.

The deal will notably enable Apple to procure faster modems for next-generation iPhones, as well as cellular iPads and Apple Watches. Critically, Apple will now be able to purchase Qualcomm’s 5G modems, which the San Diego chipmaker has sourced to virtually all of Apple’s Android-based smartphone competitors, including chief rival Samsung.

As 5G networks are now rolling out across the world, Apple faced a difficult choice between agreeing to Qualcomm’s terms or choosing between several seemingly slower or smaller suppliers. Relying on Intel as its alternative 5G supplier, the company reportedly faced a 2020 or perhaps later release date for its first 5G iPhone. Samsung’s and Motorola’s first 5G-ready phones arrived in stores earlier this month.

Apple’s dispute with Qualcomm was recently characterized as personal between the companies’ CEOs, but Apple appeared to be the chief antagonist after objecting to an arrangement it had previously accepted. Qualcomm CEO Steve Mollenkopf extended an olive branch to Apple last year by offering a lower patent licensing rate ahead of the 5G rollouts, only to be rebuffed. Apple instead took steps to develop its own modems, even announcing a San Diego engineering campus near Qualcomm’s headquarters.

While the settlement promises to “drop all litigation” between the companies, it’s unclear whether related Federal Trade Commission antitrust proceedings against Qualcomm will continue. Apple had accused Qualcomm of improperly leveraging its telecommunications patent portfolio to extract unreasonable licensing terms from numerous device makers, though Apple often sounded more concerned with the business terms — the amount it was paying — than the legality of the arrangement.

Having been cut out of the 2018 iPhone supply chain due to the ongoing disputes, Qualcomm continued to supply Apple with components for legacy devices. After successful patent suits overseas, Qualcomm also forced Apple to stop selling older infringing iPhones made without Qualcomm parts, and begin selling models with Qualcomm chips instead.

Though neither company won all of its skirmishes, the balance appeared to be tipping in Qualcomm’s favor by late 2018. The chipmaker successfully won iPhone sales bans in China and Germany, and an International Trade Commission judge recommended — but didn’t implement — a similar ban in the United States. Beyond removing the prospect of those bans and damages in other cases, today’s settlement immediately eliminates the risk of a $15 billion judgment against Apple, or a $27 billion judgment against Qualcomm, based on damages requested by each party.