Apple Inc. held talks with Intel Corp. INTC -10.07% about acquiring parts of its smartphone-modem chip business, according to people familiar with the matter, a potential multibillion-dollar deal that would accelerate the iPhone maker’s efforts to develop wireless technology for its devices.
The talks started around last summer and continued for months before halting recently, around the time Apple reached a multiyear supply agreement for modems from Intel rival Qualcomm Inc., QCOM 1.55% some of the people said.
Intel is now exploring strategic alternatives for its modem chip business, including a possible sale—to Apple or another acquirer, the people said. It has already received expressions of interest from a number of parties and has hired Goldman Sachs Group Inc. to manage the process, which is in an early stage. Should there be a deal, it could yield as much as a few billion dollars for Intel, some of the people said.
The Intel-Apple talks, which haven’t been previously reported, reflect growing openness by the iPhone maker toward the idea of big acquisitions, people familiar with the company’s operations said. The talks also are part of broader tumult in the smartphone sector as sales growth has stalled, squeezing the iPhone business that has long driven Apple’s profits.
Apple’s supply deal with Qualcomm—previously the sole supplier of iPhone modems—was part of the resolution of a two-year legal fight over Qualcomm’s royalties for wireless technology. Intel had gained the iPhone business as that feud worsened, then announced after the settlement that it was abandoning development of modems for 5G smartphones.
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Asked in an interview Thursday whether Intel is considering selling the 5G smartphone modem business, Chief Executive Bob Swan said it is “evaluating alternatives on what’s the best course for our IP and our people.” He spoke after Intel lowered its financial expectations for the year, which sent Intel’s stock plunging by about 10% Friday, one of its worst drops in years.
Selling the modem business would allow Intel to unload a costly operation that was losing about $1 billion annually, according to another person familiar with its performance. Any sale would likely include staff, a portfolio of patents and modem designs related to multiple generations of wireless technology, said Patrick Moorhead, principal at Moor Insights & Strategy, a technology firm.
Besides Apple, other potential buyers could include Broadcom Inc., ON Semiconductor Inc., Samsung Electronics Co. , or China’s Unisoc Communications Inc., which is working on 5G modems, Mr. Moorhead said.
“For Intel, the clock is ticking,” Mr. Moorhead said. “It’s not pouring more money into this business, so the value goes down with every second.”
Apple has been reluctant to cut big deals in the past, preferring to acquire about 15 to 20 small companies annually that have technology it can easily integrate into future businesses. Its biggest deal—a $3 billion acquisition of Beats Electronics LLC in 2014—helped the company jump-start its music-streaming business, but almost all of the Beats senior leadership departed.
With the downturn in its iPhone business, though, Apple is more open to large and transformative deals than at any point in its history, according to one of the people familiar with the company’s operations.
Apple has been spending its giant cash reserves on share buybacks and dividends but still has a substantial war chest, with $130 billion of cash after debt as of January.
In recent years, Apple leaders discussed possible acquisitions of Walt Disney Co. and Time Warner Inc., The Wall Street Journal has reported. Those discussions preceded Apple’s push to expand its media services.
A deal with Intel would be designed to bolster Apple’s core business rather than expand beyond it. The company has shown an appetite for chip businesses, acquiring 300 engineers last year from Europe-based Dialog Semiconductor PLC in a $600 million deal to boost its efforts to develop power-management chips. It also has been hiring engineers for its own internal chip-design operation.
The Apple and Intel discussions began last summer, around the time former CEO Brian Krzanich resigned, some of these people said. Intel had bought its modem business in 2011 from Infineon Technologies AG for $1.4 billion.
Mr. Krzanich championed the modem business and touted 5G technology as a big future revenue stream.
When Mr. Swan was named to the top job in January, analysts said odds of a sale rose because his focus on cleaning up Intel would require addressing the losses in the modem business. The company also was having difficulty keeping pace with Qualcomm on adding new features to modem chips, analysts said.
Meanwhile, Apple was developing its own modem chips internally. The company poached some Intel engineers with expertise in wireless and radio-frequency technologies, and announced plans for an office of 1,200 employees in San Diego where it began listing work for wireless engineers.
The talks between Intel and Apple coincided with the iPhone maker’s bitter legal battle with Qualcomm. The same day Apple and Qualcomm announced their deal earlier this month, Intel said it would abandon efforts to develop 5G chips for smartphones, citing “no clear path to profitability.”
Though Apple’s and Intel’s sales talks stalled, Apple remains the best choice to buy Intel’s modem operations because of the years it would save in modem development, Mr. Moorhead said. “If they don’t want it,” he said, “there’s value there for someone else.”
Dow Jones & Co., publisher of The Wall Street Journal, has a commercial agreement to supply news through Apple services.
—Asa Fitch contributed to this article.
Write to Tripp Mickle at Tripp.Mickle@wsj.com, Cara Lombardo at cara.lombardo@wsj.com and Dana Cimilluca at dana.cimilluca@wsj.com
https://www.wsj.com/articles/apple-discussed-acquiring-intels-smartphone-modem-chip-business-11556303497
2019-04-26 18:31:00Z
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