By Tripp Mickle, Cara Lombardo and Dana Cimilluca
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (April 27, 2019).
Apple Inc. held talks with Intel Corp. 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., 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.
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
(END) Dow Jones Newswires
April 27, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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