Intel INTC recently concluded the divestiture of majority of its smartphone modem business to Apple AAPL for $1 billion. The deal was announced on Jul 25, 2019, timing it with the company’s second-quarter earnings release.
Notably, the recent brief filed by the chipmaker in support of the Federal Trade Commission (“FTC”) states that Intel was compelled to sell off its smartphone modem business “at a multi-billion dollar loss”, owing to Qualcomm’s QCOM anticompetitive behavior.
Nonetheless, with the divestiture, Intel aims to better focus on the development of technology for 5G network infrastructure.
Per the terms of the agreement, around 2,200 Intel employees were set to join Apple along with intellectual property, leases and equipment. Further, the transaction provides the iPhone-maker with access to more than 17,000 wireless technology patents, including protocols for cellular standards, modem architecture and modem operation.
The tough decision of moving away from the struggling 5G smartphone modem business required a prudent strategy. We believe that the divestiture of smartphone modem business to Apple will aid the chipmaker to evaluate prospects in 5G for IoT and data center, considering the huge complementarities of the technology in high-growth domains.
Moreover, the chipmaker has kept its options open to develop modems, pertaining to non-smartphone applications, including connected devices, PCs and autonomous vehicles.
Focus on Exploring Other Growth Avenues
Intel’s focus on data center, cloud, self-driving car and IoT are key growth drivers. The company has made progress in this area and is now offering more integrated solutions, which are likely to be competitive on a cost-per-watt basis.
Intel Corporation Price and Consensus
Intel Corporation price-consensus-chart | Intel Corporation Quote
Notably, IDC expects worldwide IoT spending to reach $1.1 trillion in 2023, representing a CAGR of 12.6% between 2019 and 2023.
Additionally, Intel is investing in field programmable gate array (FPGA) for acceleration and memory to reduce latency and increase speed. This is enabling the company to develop custom solutions for big players. Acquisitions of Omnitek and Barefoot Networks remain quintessential in this regard.
We also note that Intel’s CEO, Bob Swan, is exploring options for less competitive areas. The company is reportedly looking for buyers for its connected home division — a unit engaged in manufacturing chips used in home internet access gear, which enables wireless connection.
Swan also pointed out that Intel’s memory business has been sluggish and might consider seeking a partner for the same. Swan continues to strengthen Intel’s data-centric business and his strict stance on finances is worth mentioning.
We believe these initiatives will aid the chipmaker to sustain its competitive position in the semiconductor market against peers, including AMD AMD and NVIDIA.
Zacks Rank
Intel currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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