Intel CEO Bob Swan has confirmed the impetus for his decision April 16 to exit the 5G phone modem chip market in an interview with Wall Street Journal.
Swan’s first major decision as Intel chief was to drop the company's 5G smartphone modem plans about a year before the Intel was due to deliver chips to Apple. The surprising move was announced just hours after news broke that Apple had settled its year-long legal dispute with Intel rival Qualcomm, signaling that Qualcomm would begin supplying chips for Apple’s iPhones again.
The dispute seemed to be a boon for Intel, and Apple’s 2018 iPhone models contained Intel chips. Earlier this month, Qualcomm’s CFO George S. Davis announced he was moving to Intel to take over CFO duties vacated by Swan, who was appointed CEO earlier this year.
It’s unclear if Apple decided to settle with Qualcomm because it believed Intel would not be able to deliver the 5G modem chips in time for its planned 5G iPhone launch. Analysts had warned that Intel’s 5G smartphone modem department was behind schedule and not performing well.
When Intel announced its decision to scrap its 5G modem plans, Swan said “it has become apparent that there is no clear path to profitability and positive returns.” But Swan told WSJ that the news of the settlement was what had spurred the decision.
“In light of the announcement of Apple and Qualcomm, we assessed the prospects for us to make money while delivering this technology for smartphones and concluded at the time that we just didn’t see a path,” Swan told WSJ.
The decision came amid a trade war between the U.S. and China and an economic downturn in Chinese market that has hurt Intel’s earnings. In its latest earnings report, released this week, Intel’s total revenue was flat year-over-year at $16.1 billion, and it revised expectations down for the full year.
Intel suffered a 5% decline in sales for its data-center chips, while revenue declined in Q1 2019 for its memory and programmable chip business. The company’s legacy PC-chip business grew 4% during the quarter, offsetting some of the decline. Profit for the quarter was $3.97 billion, down 11% from the year-ago quarter. Intel stock dropped 7% in after-hours trading following the lowered guidance.
Speaking during the earnings call, Swan said the company is “conducting a strategic assessment of 5G modems for the PC and IoT sectors,” according to a transcript provided by Seeking Alpha.
“By acting now, we focus our 5G efforts on the transformation of the wireless network and edge infrastructure, where we have a clear technology advantage, market share to win and a strategic role to play with customers,” he said, noting that Intel plans to maintain its commitments to customers for its 4G chips.
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The company is now mulling over what to do with its 5G modem business.
“We haven’t really completed our assessment about what to do with the wonderful IP that we’ve developed, [and] the real strong team that we have,” he said. Intel could sell off the business, but Swan instead floated the idea that its 5G modems may be used for non-smartphone applications. “That’s still a work in progress,” he said.