Apple is buying Intel’s smartphone modem business for $1 billion. This move has been anticipated for the past couple of months and is significant for four reasons:

This is another example of Apple wanting to own the technology behind the products that it makes. The vertical integration strategy yields greater control over product innovation and manufacturing.

If successful, Apple would likely no longer use the industry-standard Qualcomm modem, and potentially gain a feature advantage (i.e. lower power usage) over the industry.

Building this modem will be difficult. We expect the first Apple modem in mid-2022, two years after the expected debut of Apple’s first 5G phone in the fall of 2020.

Starting in 2023 this could save Apple about $2B per year in licensing fees paid to Qualcomm (assuming royalty of approximately $8 per device), and increase Apple’s gross margin by just under 1% (38.1% to 38.8%).

Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.