Apple ramping up in-house iPhone modem efforts as relationship with Intel grows strained

Following an analyst this morning saying Apple may not release a 5G iPhone until 2021, a report from Fast Company this evening sheds more light on Apple’s modem efforts. The report details the company’s increasingly strained relationship with Intel, and the growth of its in-house modem team.

According to the report, Apple has between 1,000 and 2,000 engineers working on modem chips for future iPhone. The company has reportedly recruited engineers from both Intel and Qualcomm. While Apple’s in-house modem team is “ramping up quickly,” Fast Company says it’s not likely that we will see an Apple-designed modem until at least 2021.

It is possible that future iPhone modem chips could be designed at that facility by Apple employees, and then fabricated by TSMC or Samsung. But that effort is likely about iPhones for 2021 and beyond.

A Reuters report last year explained Apple’s new focus on in-house modems, saying that Johny Srouji was heading the project.

Meanwhile, Apple is said to have “lost confidence” in Intel’s ability to deliver its promised 5G modem by 2020. Intel has reportedly missed deadlines for the development of its XMM 8160 5G modem. In order to secure Apple’s order for the 2020 iPhone, Intel needs to get sample parts to Apple by this summer. Apple is no longer confident this will happen.

The report explains that Apple is a demanding client, and that Intel is starting to grow conflicted about the future of its Apple partnership. Intel sells modems to Apple at razor-thin margins, and also has to put Apple orders at the front of the line. This puts the higher margin data center orders last on Intel’s list:

Because Apple demands that its orders be first in line for Intel’s fab, Intel is forced to lower the priority of higher-margin chip orders, such as chips for data center servers. Intel, our source says, has been internally conflicted over the Apple business.

Intel’s new CEO, Robert Swan, is a relative outsider who only joined Intel in 2016 as its chief financial officer. Coming from that background, Swan may take a practical view of the Apple business and ask why the company shouldn’t focus on more profitable business lines in more familiar categories.

Therefore, Apple has gotten itself into a pinch when it comes to finding a 5G modem supplier. The company has reportedly held talks with both Samsung and Mediatek about supplying modem chips, but neither is expected to be in a position to supply 5G modems for the iPhone by 2020. This isn’t the first we’ve heard about Apple considering Samsung and Mediatek for future modems.

Fast Company cites “one source” in saying that it makes the most “business sense for Apple to go back to Qualcomm for its 5G modem chips.” Given the increasingly tumultuous legal battle between the two, however, that seems highly unlikely.