Apple Nears Pact to Acquire Intel's Phone-Chip Business -- WSJ
July 23 2019 - 3:02AM
Dow Jones News
iPhone maker nears deal to acquire
By Dana Cimilluca, Cara Lombardo and Tripp Mickle
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 (July 23, 2019).
Apple Inc. is in advanced talks to buy Intel Corp.'s
smartphone-modem chip business, according to people familiar with
the matter, a move that would jump-start the iPhone maker's push to
take control of developing the critical components powering its
devices.
A deal, covering a portfolio of patents and staff valued at $1
billion or more, could be reached in the next week, the people said
-- assuming the talks don't fall apart.
Though the potential acquisition price would be a rounding error
for companies valued in the hundreds of billions of dollars, a
transaction would be important strategically and financially.
It would give Apple access to engineering work and talent behind
Intel's yearslong push to develop modem chips for the crucial next
generation of wireless technology known as 5G, potentially saving
years of development work. Apple has been working to develop chips
to further differentiate its devices as smartphone sales plateau
globally, squeezing the iPhone business that has long underpinned
its profit. It has hired engineers, including some from Intel, and
announced plans for an office of 1,200 employees in San Diego.
For Intel's part, a deal would allow the company to shed a
business that had been weighing on its bottom line: The smartphone
operation had been losing about $1 billion annually, a person
familiar with its performance has said, and has generally failed to
live up to expectations. Though it would exit the smartphone
business, Intel plans to continue to work on 5G technology for
other connected devices.
Intel and Apple have been in off- and on-again talks for about a
year. They broke down around the time Apple reached a multiyear
supply agreement for modems with Intel rival Qualcomm Inc., The
Wall Street Journal reported in April.
Intel had cast a wider net for buyers then and received
expressions of interest from a number of parties, but the talks
with Apple -- long seen as the most-logical buyer -- soon
resumed.
Apple's supply deal with Qualcomm, previously the sole supplier
of iPhone modems, was part of the resolution of a two-year legal
fight between the companies over royalties Qualcomm collects for
its wireless technology.
Intel had made inroads with Apple as that feud worsened, but
announced after the settlement that it was abandoning development
of modems for 5G smartphones -- an effort it had spent a decade and
billions of dollars on -- citing no clear path to profitability.
Intel had bought its modem business in 2011 from Infineon
Technologies AG for $1.4 billion.
The Apple-Intel discussions began last summer, around the time
former Intel Chief Executive Brian Krzanich resigned, people
familiar with the matter have said. Mr. Krzanich championed the
modem business and touted 5G technology as a significant future
revenue stream. When Bob Swan was named to that job in January,
analysts said the odds of a deal rose because his focus on cleaning
up Intel would require addressing the losses in the modem
business.
Intel is the latest Apple supplier to exit a business after the
iPhone maker moved to develop components in-house. Late last year,
Apple agreed to a $600 million deal to acquire 300 engineers and
facilities from Dialog Semiconductor PLC as the company
increasingly develops the battery-management chips Dialog had
supplied.
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. But with the slowdown in
its iPhone business, the company has become more open to bigger
deals. It has been spending its giant cash reserves on share
buybacks and dividends, but still has a substantial war chest, with
$113 billion of cash after debt as of March 30. Its largest deal to
date remains the $3 billion acquisition of Beats Electronics LLC in
2014.
Apple is set to report its fiscal third-quarter results next
week. Intel's results are due later this week.
Dow Jones & Co., publisher of The Wall Street Journal, has a
commercial agreement to supply news through Apple services.
Write to Dana Cimilluca at dana.cimilluca@wsj.com, Cara Lombardo
at cara.lombardo@wsj.com and Tripp Mickle at
Tripp.Mickle@wsj.com
(END) Dow Jones Newswires
July 23, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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