Chip giant Intel (NASDAQ: INTC) bought its way into the market for cellular modems -- chips that allow devices, like smartphones, to connect to cellular networks -- in 2011, with its acquisition of Infineon's Wireless Solutions unit.
For quite a while, this business proved to be a money sink: Intel invested heavily in the development of next-generation cellular chips, but struggled to generate revenue from the portfolio of technologies it inherited when it bought the business.
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Interestingly, back at its November 2013 investor meeting, Intel had told investors to expect a steep ramp-up in revenue over the course of 2014 from the sale of modems that supported the 4G LTE standard.
That ramp-up didn't happen. Thanks to some new information that recently became public, I have a hunch about what might have happened.
Intel may have expected an iPhone win
According to a recent ruling from the European Commission, Qualcomm (NASDAQ: QCOM) -- a longtime supplier of modems to Apple -- signed an agreement in 2011 that required Apple to source its cellular modems exclusively from Qualcomm. In exchange, Qualcomm would make "significant payments to Apple," the ruling says.
That deal, the European Commission says, was extended until the end of 2016 at some point during 2013.
The European Commission, citing "internal documents," claims that Apple "gave serious consideration to switching part of its baseband chipset requirements to Intel," but it ultimately didn't, in large part because of the exclusivity agreement Apple had signed with Qualcomm.
What's interesting is that Intel publicly provided the forecast for the ramp-up in its LTE modem revenue on Nov. 21, 2013. So Qualcomm and Apple may have extended the exclusivity agreement that was in place sometime very late in 2013.
Could it have been anything else?
It's possible that Intel's expectation of increased revenue wasn't based on winning orders from Apple, but with the benefit of hindsight that seems unlikely.
Keep in mind that the vast majority of smartphones don't use stand-alone cellular modems -- they use applications processors with the key cellular baseband functionality integrated into the applications processor. Apple was, at the time, one of the only major smartphone vendors that still used stand-alone modems (since Apple develops its own applications processors but doesn't build its own modems).
For Intel to expect a significant ramp-up in LTE-related revenue, it must have thought it had won a spot -- or was very close to winning a spot -- inside of a mass-market smartphone. Or it may have expected smaller design wins (and note that many such wins would have been needed) to add up to significant revenue.
It's hard to believe that Intel thought that it had a bunch of smaller customers lined up to buy its latest LTE modem, only to have virtually all of them bail out over the course of 2014. The only explanation that seems to nicely fit the facts: Intel had expected to sell its then-new XMM 7260 into some versions of Apple's iPhone 6-series smartphones -- phones that went on to be wildly successful -- but that ultimately fell through, due to Apple's agreement with Qualcomm.
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