The Wall Street Journal is reporting that Apple Inc. (NASDAQ: AAPL) is in advanced talks to acquire Intel Corp’s (NASDAQ: INTC) modem chip business within the next week. According to the Journal, which cites people familiar with the matter, the deal could be valued at $1 billion and include employees and patents.
If the deal goes through, the iPhone maker will receive key patents and engineering talent needed to help it develop its own 5G chip for its devices, including the iPhone. Its profit margins could also improve in the process by ditching the middle man. In recent years, Apple has been making many of its chips, including ones for iPads, iPhones, Apple Watches, and Macs.
Intel, on the other hand, will be able to get rid of a unit that has been making losses. The Journal’s sources said the division has been posting losses of close to $1 billion each year.
Intel lost hope in its modem unit after Qualcomm (NASDAQ: QCOM) and Apple settled their long-lasting patent dispute on April 16 this year. As part of the settlement, Apple made a payment of between $4.5 to $4.7 billion to Qualcomm, and agreed to continue sourcing Qualcomm chips for six, with a two-year extension option.
“We are very excited about the opportunity in 5G and the ‘cloudification’ of the network, but in the smartphone modem business it has become apparent that there is no clear path to profitability and positive returns,” Intel chief executive Bob Swan said on the day Qualcomm and Apple settled their settled litigation involving 5G modems.
Shares of Intel gained 1.27% to $52 in premarket trading on Tuesday, while those of Apple were little changed. Qualcomm stock was down more than 1.5% on concerns that an agreement between Apple and Intel will hurt its business.
Apple essentially has to rely on Qualcomm – until or unless the iPhone maker begins to develop its own 5G smartphone chips. Assuming the discussions don’t break down, the iPhone maker and Intel could complete the deal as early as next week.
