Apple in Advanced Talks to Buy Intel’s Smartphone-Modem Chip Business

Part of the reason is that Intel tried to aquire their way into this market. So they bought Infineon - which let's face it, Infineon wouldn't have sold if it was going well. So they bought the distant second place in the modem market in 2011 and started work on 4G, with the intention of catching up.

The only real product success they had was getting Apple for 4G and we can quite clearly see that as more of a strategic move by Apple against Qualcomm. Over that period there were numerous issues about Intel chips not being as high performance or low power as Qualcomm - which we'd hardly find surprising.

So there's that element to it, but the second element is that Intel has a fantastic reputation for destroying the businesses they acquire. Essentially what happens is that once they acquire a business they do a number of things:

1. They take a long time to perform these acquisitions. The timeline from first hints of acquisition to close can be years. So the engineering organisation of the company being acquired starts to hide problems because they fear it will endanger the acquisition. So you have a steady build up of issues that will overflow on day 1 after the deal closes.

2. They massively invest. This means massively increasing the cost structure of the acquired company, they do this whilst setting much higher targets to justify the investment. But there's two problems: The new employees take a long time to bring up to speed, and because Intel is constantly re-prioritizing you have existing engineers in Intel who are trying to move across into any role available. Suddenly you have a team of engineers in Folsom who basically have no work to do and so they're dumped into the new growth area (because as we all know, engineers are fungible commodities). The acquired company needs to figure how the hell these engineers are going to contribute.

3. They massively increase expectations. That investment has to pay off, so they set way higher new goals - and not "In 5 years time you need X revenue" more "This year you need 30% revenue increase". This immediately puts the new business in panic mode - EOLing products and doing sales tricks to invent revenue to hit the target. Year 2, all the sales guys know they pumped year 1's numbers to hit their targets so the good sales guys jump ship -either into different parts of Intel or entirely out of the company.

4. They find SYNERGY. What that means is every other branch of Intel will turn up and start either insisting you use their technology (guess what: You're using the Intel Fab now despite the fact we can't deliver on 10nm). Because Intel is so much larger than the companies they acquire your little business group suddenly has thousands of people coming to you saying "How about you work on this" or "Our client needs this let's bundle these products". That creates massive attrition on your core business.

5. They scale up: Intel is such a big company they literally can't chase small revenue - it would eat them up in COGS to sell $1m at a time. So very quickly the acquired business starts to lose its small customers that make up the revenue that made the business attractive in the first place.

So in the end: You've alienated all your customers, you've thrown your engineering organisation into dis-array, you've set ridiculous targets, and you're now owned by a company that's perfectly willing 5-10 years down the road to pull the plug on the entire sector you're working in. Hey presto: They 10 year cycle from Acquisition to Spin-off. Say hello to the boys at McAfee!

Well that’s vertical integration for ya. (Or is it horizontal? I always mix those two up due to some kind of spatial orientation hangup I have.)

Vertical, apple buying hardware companies for use in its own hardware.

Interesting, Apple could do some interesting things with this. The qualcomm situation has resulted in a lot of stagnation in our industry. Companies like Apple are forced to work with them. But given their track record as being aggressive on the IP front (both sides), they have to spend a lot of effort engineering around this stuff. Companies like Intel, Qualcomm, Nokia own a lot of these patents and Apple has been paying them off for as long as the iPhone has been around.

To this day there's not a single Apple laptop that ships with built in 4G modems even though that would make sense from a functional point of view. I suspect the reason is not technical but related to IP and pushback from other players in the ecosystem (e.g. operators). As soon as you add 4G/5G to the mix, there are suddenly a lot of sneaky patents that come into play.

At least you can't tell me that nobody in Apple pondered the question "hmm I wonder which of our Mac Book Air customers would not like to be connected anywhere on this planet". The reason this is not a feature is that it would add a lot of cost related to patents and IP licensing. This deal might fix that partially. Software sims have been similarly difficult for the same reasons and another thing Apple has been pushing on lately.

Apple doing this stuff in house means they can push harder on this front.

The "synergy" stuff is so true! I talked with a colleague who interned at Intel doing HDL development for networking. Guess what - when Intel acquired Altera they asked each division to evaluate using FPGAs in their products.