Apples Acquisition of Intels Modem Business
Apple is one of the largest manufacturers of mobile phones in the world. The company is the largest in the world and recently became the first one to cross the $1 trillion market capitalization mark.
The company has been recently engaged in a quagmire with Qualcomm, which is one of its suppliers. Finally, Apple had to settle the lawsuit and agree to Qualcomms terms. As a result, it is rumoured that the company is now planning to develop products independently of Qualcomm.
It is rumoured that Apples $1 billion acquisition of Intels modem business is just the first step in this direction. $1 billion might appear like a big amount for an average company.
However, it is not significant for a company like Apple, given the fact that this move is likely to reduce its dependence on Qualcomm and make them more independent.
This article provides details about the deal between Apple and Qualcomm. It also provides information about why Apples acquisition of Intels modem business is strategic in nature and hence will benefit the company in the long term.
Details of the Deal between Intel and Apple
Apple Inc. has agreed to acquire the modem business of Intel for a consideration of $1 billion. This includes all the intellectual property, physical property, equipment leases, and over 2200 employees. It is said that Apple had made the decision to build a new modem in-house after the Qualcomm debacle.
However, they figured out that going the greenfield way would cost a lot of time and money. This is the reason that they went the brownfield way and acquired Intels operations.
This acquisition will reduce the time required by Apple to increase its technological know-how. Apple is fully aware of the fact that the modem industry has huge entry barriers because of the high cost and technology requirement.
Apple already has deep pockets to offset the high-cost barrier. However, it still needs technology to be able to compete with companies like Qualcomm on an equal footing.
Why did Apple want to Develop an In-House Modem?
Apples Relationship with Qualcomm
After the Intel modem acquisition, Apple has developed a love-hate relationship with Qualcomm, which is one of the largest competitors of the company. This is because Apple is still under a six-year contract, which makes it mandatory for it to buy at least some modems from Qualcomm.
Also, at the moment, Intel does not have a ready 5G modem. It is going to be a while before Intel can develop something which can be used by Apple. Hence, immediately kicking Qualcomm to the curb would do Apple more harm than good.
Qualcomm, on the other hand, is now completely aware that the partnership with Apple is no longer strategic or long-lasting. Hence, they are likely to raise the prices of their modems or even delay delivery to Apple so that the company is not able to launch their 5G phone in 2020!
The bottom line is that the impact of this mega acquisition will not be seen immediately. However, over the long term, Apple will be able to produce a better product at a lower cost thanks to this acquisition. Hence, the $1 billion spent by Apple on this acquisition is completely in line with Apples strategic values.
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