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INTEL CORPORATION (INTC)
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Apple considered Samsung, MediaTek to supply 5G modems for 2019 iPhones

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01/11/2019 | 04:53pm EST
An attendee uses a new iPhone X during a presentation for the media in Beijing

(Reuters) - Apple Inc held talks with Samsung Electronics Co Ltd and MediaTek Inc along with existing vendor Intel Corp to supply 5G modem chips for 2019 iPhones, according to an Apple executive's testimony at a trial between Qualcomm Inc and the U.S. Federal Trade Commission on Friday.

Between 2011 and 2016, Apple relied on San Diego-based Qualcomm as the sole supplier of such chips, which help iPhones connect to wireless networks. Starting in 2016, Apple split the business between Intel and Qualcomm, but in 2018, Apple moved solely to Intel for its newest phones.

But Apple supply chain executive Tony Blevins testified on Friday that Apple has also considered MediaTek and Samsung, one of its largest rivals in the smart phone market, to supply the chips for the next generation of wireless networks known as 5G. Those networks are expected to start rolling out this year and provide faster data speeds than current 4G networks.

The FTC is suing Qualcomm alleging the chip supplier engaged in anticompetitive patent licensing practices to preserve a dominant position in the premium modem chip market.

On the stand at a federal courthouse in San Jose, California, Blevins testified that Apple has long sought multiple suppliers for modem chips but signed an agreement with Qualcomm to exclusively supply the chips because the chip supplier offered deep rebates on patent licence costs in exchange for exclusivity.

In 2013, Apple broke off work with Intel to start supplying modems for the iPad Mini 2 because Apple would lose its rebates by using Intel's chips, rendering Intel's products "economically unattractive" overall.

Later that year after cost negotiations with Qualcomm did not go as Apple hoped, Apple kicked off "Project Antique" to secure a second modem supplier, Blevins testified.

By 2016 and 2017, Apple introduced Intel's modems in some of its iPhones but also still used Qualcomm chips. But Apple's lawsuit against Qualcomm filed in early 2017 caused their business relationship to change "in a very profound and negative manner," leading to using only Intel's modems for the phones released last year.

"The entire concept of Project Antique was to find a second supplier. No offence to (Intel) but we don't want to be single supplier with them. We wanted both Qualcomm and (Intel) in the mix," Blevins said. Blevins also testified Apple considered making Intel the sole supplier of modems for the Apple Watch, which added 4G connectivity in 2017 using Qualcomm chips.

Blevins said that talking with Samsung, whose Galaxy and Note devices compete against the iPhone, is "not an ideal environment" for Apple, but that Samsung is currently the largest component supplier to Apple.

Blevins did not say whether Apple had reached a decision on a 5G modem supplier or whether it would release a 5G iPhone in 2019. Citing sources, Bloomberg previously reported that Apple would not release such a phone until 2020.

(Reporting by Stephen Nellis; editing by Susan Thomas and James Dalgleish)

By Stephen Nellis

Stocks mentioned in the article
ChangeLast1st jan.
APPLE -1.50% 154.4616 Delayed Quote.-0.58%
INTEL CORPORATION -2.18% 48.125 Delayed Quote.4.82%
MEDIATEK INC. --End-of-day quote.
QUALCOMM -1.87% 54.21 Delayed Quote.-2.88%
SAMSUNG ELECTRONICS CO LTD --End-of-day quote.
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Financials ($)
Sales 2018 71 198 M
EBIT 2018 24 456 M
Net income 2018 21 020 M
Debt 2018 15 690 M
Yield 2018 2,40%
P/E ratio 2018 10,96
P/E ratio 2019 11,37
EV / Sales 2018 3,37x
EV / Sales 2019 3,23x
Capitalization 225 B
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Mean consensus OUTPERFORM
Number of Analysts 39
Average target price 54,1 $
Spread / Average Target 10,0%
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NameTitle
Robert Holmes Swan Chief Executive Officer, Executive VP & CFO
Andy D. Bryant Chairman
Ann B. Kelleher Senior VP-Technology & Manufacturing Group
Venkata S. M. Renduchintala Chief Engineering Officer
Paula Tolliver Chief Information Officer & Vice President
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