Apple May Buy Intel's 5G Modem Business, ETFs To Rally

Apple Inc. (AAPL - Free Report) is probably on the verge of buying Intel Corp.’s (INTCFree Report) smartphone-modem chip business for about $1 billion, per Wall Street Journal. Apple shares rose 2.3% on Jul 22 while it added 0.4% after hours. On the other hand, Intel shares inched up 2.2% on the day and advanced about 1.2% after hours. The prospective deal seems a strategic fit.

In April, Intel said it would no longer make 5G modems for smartphones, citing "no clear path to profitability and positive returns" in the smartphone modem business, per CNN. News doing rounds is that the division was losing about $1 billion a year.

On the other hand, Apple looks primed to take full control of the entire manufacturing. Per Wall Street Journal, the iPhone-maker has been working to produce in-house chips to further distinguish its devices amid global slowdown of smartphone sales. It has employed engineers, including some from Intel. Late last year, Apple agreed to a $600 million deal to acquire 300 engineers and facilities from Dialog Semiconductor plc.

Intel was reportedly in search of a buyer for its modem business. And Apple comes across as one of the best bets given its long-standing customer-supplier relationship with Intel. Prior to Apple-Qualcomm’s six-year license agreement and a multi-year chipset supply agreement, Intel was the sole third-party modem supplier for the 2018 models of the iPhone.

In the past, Apple had gone for smaller acquisitions with the latest being the buying of self-driving startup Drive.ai. But with the slowdown in its iPhone business, the main moneymaker, the company needed to be open to bigger deals, per Wall Street Journal. It has substantial $113 billion of cash after debt as of Mar 30 (per WSJ), which gives it a leeway to crack a billion-dollar deal. Its largest deal so far remains the $2.6 billion acquisition of Beats Electronics LLC in 2014.

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