Apple Buys Intel 5G Modem Business for iPhones

After trying, and failing, to crack the smartphone wireless modem business, Intel sold what remained of its efforts to Apple Thursday for $1 billion.

The iPhone maker will get the rights to all of Intel’s intellectual property around modems, as well as some 2,200 new employees, along with all of their offices and equipment. Intel was the sole supplier of modems for last year’s iPhones, but Apple didn’t buy the business to supply the next few years of iPhone upgrades. It already struck a new, multi-year deal with Qualcomm for modem chips in April. Instead, the purchase will allow Apple to develop its own modem technology, gradually, over the next few years.

The acquisition “will help expedite our development on future products and allow Apple to further differentiate moving forward,” Johny Srouji, Apple’s senior vice president of hardware technologies, said in a statement.

That’s a long-term win for Apple that’s consistent with the company’s long-time strategy to “own and control” the primary technologies inside its products. The strategy was publicly set out by Apple’s late CEO Steve Jobs back in 2004 and repeated by current CEO Tim Cook about 10 years ago. As one example, Apple bought mobile chip designer P.A. Semi in 2008 and started making its own processor chips for the iPhone in 2010.

Analysts agreed it would take several years of significant effort for Apple to develop its own modem chips, based on Intel’s efforts, that would equal or exceed Qualcomm’s products. “I don’t see these assets translating into anything that has the chance to challenge Qualcomm for three to five years,” says Patrick Moorhead, a semiconductor industry analyst and president of Moor Insights & Strategy.

The deal isn’t much of a loss for Qualcomm, at least for the next few years, though.

Apple and Qualcomm have not specified exactly the length of their modem chip supply agreement, saying only it was a “multiyear” deal. The two companies did disclose that a separate intellectual property licensing deal struck at the same time had a term of six years, with an option to extend for another two years. Both companies declined to comment to Fortune on Thursday.

And since Intel’s modem effort failed previously, the chipmaker was already a loser, but now it at least gets $1 billion to salve its wounds.

The deal wasn’t much of a surprise, after new Intel CEO Bob Swan announced in April he was shuttering the costly modem effort, which had only attracted Apple as a customer. The chip giant was never able to surpass the features and performance of modems from Qualcomm, and was falling even further behind as the market moved to next generation 5G technology. As a part of the deal, Intel will retain the right to develop modems for non-smartphone devices, like PCs and cars.

The deal also closes the book on Intel’s $1.4 billion purchase of the wireless modem business from German chipmaker Infineon Technologies in 2010. Many of the employees joining Apple in the new deal are still based in Germany.

At $1 billion, the sale is “an amount well below what Intel paid for Infineon’s modem business, not to mention the billions (of dollars) in incremental investments made,” quipped Bernstein analyst Stacy Rasgon. Intel also may be looking to shed other underperforming divisions, like its NAND memory chip business, also, he noted.