Apple in advanced talks to buy Intel's smartphone-modem chip business

Apple Inc. is in advanced talks to buy Intel Corp.'s smartphone-modem chip business, according to people familiar with the matter, a move that would jump-start the iPhone maker's push to take control of developing the critical components powering its devices.

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A deal, covering a portfolio of patents and staff valued at $1 billion or more, could be reached in the next week, the people said -- assuming the talks don't fall apart.

Though the potential acquisition price would be a rounding error for companies valued in the hundreds of billions of dollars, a transaction would be important strategically and financially.

It would give Apple access to engineering work and talent behind Intel's yearslong push to develop modem chips for the crucial next generation of wireless technology known as 5G, potentially saving years of development work. Apple has been working to develop chips to further differentiate its devices as smartphone sales plateau globally, squeezing the iPhone business that has long underpinned its profit. It has hired engineers, including some from Intel, and announced plans for an office of 1,200 employees in San Diego.

For Intel's part, a deal would allow the company to shed a business that had been weighing on its bottom line: The smartphone operation had been losing about $1 billion annually, a person familiar with its performance has said, and has generally failed to live up to expectations. Though it would exit the smartphone business, Intel plans to continue to work on 5G technology for other connected devices.

Intel and Apple have been in off- and on-again talks for about a year. They broke down around the time Apple reached a multiyear supply agreement for modems with Intel rival Qualcomm Inc., The Wall Street Journal reported in April.

Intel had cast a wider net for buyers then and received expressions of interest from a number of parties, but the talks with Apple -- long seen as the most-logical buyer -- soon resumed.

Apple's supply deal with Qualcomm, previously the sole supplier of iPhone modems, was part of the resolution of a two-year legal fight between the companies over royalties Qualcomm collects for its wireless technology.

Intel had made inroads with Apple as that feud worsened, but announced after the settlement that it was abandoning development of modems for 5G smartphones -- an effort it had spent a decade and billions of dollars on -- citing no clear path to profitability. Intel had bought its modem business in 2011 from Infineon Technologies AG for $1.4 billion.

The Apple-Intel discussions began last summer, around the time former Intel Chief Executive Brian Krzanich resigned, people familiar with the matter have said. Mr. Krzanich championed the modem business and touted 5G technology as a significant future revenue stream. When Bob Swan was named to that job in January, analysts said the odds of a deal rose because his focus on cleaning up Intel would require addressing the losses in the modem business.

Intel is the latest Apple supplier to exit a business after the iPhone maker moved to develop components in-house. Late last year, Apple agreed to a $600 million deal to acquire 300 engineers and facilities from Dialog Semiconductor PLC as the company increasingly develops the battery-management chips Dialog had supplied.

Apple has been reluctant to cut big deals in the past, preferring to acquire about 15 to 20 small companies annually that have technology it can easily integrate. But with the slowdown in its iPhone business, the company has become more open to bigger deals. It has been spending its giant cash reserves on share buybacks and dividends, but still has a substantial war chest, with $113 billion of cash after debt as of March 30. Its largest deal to date remains the $3 billion acquisition of Beats Electronics LLC in 2014.

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Apple is set to report its fiscal third-quarter results next week. Intel's results are due later this week.

Dow Jones & Co., publisher of The Wall Street Journal, has a commercial agreement to supply news through Apple services.

Write to Dana Cimilluca at dana.cimilluca@wsj.com, Cara Lombardo at cara.lombardo@wsj.com and Tripp Mickle at Tripp.Mickle@wsj.com