A market leader in central processing units for PCs and servers, Intel came late to the market for mobile communication chips, that also includes modems and processors for smartphones. The technological hurdles, as well as the difficulty of making chips for customers in the place of its own use, proved too daunting for the company.

 

Confessing failure is possibly to have been a humbling experience for a company once on the cutting edge of the chip industry. Started in 1968 by Gordon E. Moore - famous as the creator of Moore's law of semiconductor evolution - Intel introduced the first-ever commercial microprocessor chip and became a household name as a leader in the PC industry.

 

Intel's venture into the smartphone age came in 2011 when it attained Infineon's mobile chip making unit. But the U.S. company has failed to catch up with Qualcomm and MediaTek in mobile chips, and declared its withdrawal from the mobile processor business in 2016 to focus on modem technology development. Modems are critical components that determine phone quality and data transfer speed. Intel secured its first order to supply modems for Apple's iPhones in 2016, and had anticipated the arrangement would help brush up its own technology. It gained market share in 2017 and become the sole iPhone modem supplier in 2018 due to the legal dispute began by Apple in January 2017.

 

Apple saw working with Intel as an opportunity to decrease its heavy reliance on Qualcomm. The iPhone maker is Intel's biggest client for modem products. But Intel has long trailed Qualcomm in mobile-related chip design, which prioritizes power-efficient operation. Intel's strength is in making powerful computing chips and the company could not meet the power-management requirements that the mobile era demands.

 

Qualcomm accused Apple of reducing its product standards to accommodate Intel when the two companies split orders in 2016 and 2017. For the time being, Intel's ambitions required a cultural shift that its employees found challenging. They were not used to dealing with outside customers, sources familiar with the matter said. For 50 years, the company has primarily designed and produced chips for its own use. That meant allocation of resources to priority projects was clear.

 

However, iPhone's modem business has had to compete with other Intel projects for manufacturing resources. This was one reason for the substantial shortage of central processing unit chips for PCs and laptop computers that has afflicted the company since the second half of 2018, as Nikkei Asian Review first reported last year. In 2018, Intel brought production of Apple's modem chips in-house for the very first time but faced some technical issues, sources familiar with the matter said.

 

In 2016 and 2017, the company outsourced production to Taiwan Semiconductor Manufacturing Co., the world's biggest contract chipmaker. By the end of 2018, Intel notified TSMC that it anticipated to outsource its modem chips again. It is recently running test production with the Taiwanese chip manufacturer, sources familiar with the matter said. 'The move to outsource is Intel's attempt to reduce its own production risks and reduce committing too many sources in-house for the modem business,' a source with knowledge of the matter said.

 

Even though Intel's modem business has seen healthy revenue growth since 2016, it has been a money-losing business since the company accumulated Infineon's mobile unit in 2011. When Intel CFO Bob Swan took over as CEO of the U.S. chip giant last year, the company's business strategy transformed, say sources close to Intel. The focus is now quite definitely on profitable businesses, they said.

 

Under Swan, Intel also earlier on this year terminated its partnership to share 5G modems with Chinese state-backed mobile chipmaker UNISOC, as Nikkei reported in March. In the October-December period of last year, Intel's modem business made $1.3 billion in revenue, up more than 44% from a year ago. But, it still accounted for only about 7% of the chipmaker's total revenue. With Intel out of the smartphone modem business, only Qualcomm, MediaTek, Samsung, Huawei, and China's state-backed UNISOC remain in the game. Samsung and Huawei, further, only develop modems for their own products.

 

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