13 years after Intel’s iPhone mistake, it might take the biggest ever tech deal to resolve the issue

Some 13 years after Intel turned down the opportunity to make the CPU for the upcoming iPhone, it is now considering the world’s biggest ever tech acquisition to deal with the threat that decision continues to pose today.

In 2005, when Apple was working on the first-generation iPhone to be launched in 2007, Steve Jobs invited Intel to pitch for the CPU business for the planned smartphone. Not believing Apple’s sales projections, and not seeing any way to make money from it, Intel turned him down …

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Intel not only lost out on the CPU chip business, but if the proposed Broadcom merger with Qualcomm goes ahead, Intel may lose its iPhone modem chip sales too. Fearing that it may be about to be locked out of the smartphone chip business altogether, Intel is reportedly considering making a massive acquisition bid for Broadcom – a company valued at more than $100B.

Former head of Macintosh products Jean-Louis Gassée explains what he believes to be the reasoning behind this ‘suicidal defence move.’

Belatedly, Intel realized it needed a seat at the smartphone table. Despite troubles with its more advanced manufacturing processes, the company managed to supply some wireless modems for the iPhone 7, 8 and X. Ironically, the alliance was aided by a long standing and bitter intellectual property dispute between Apple and Qualcomm. If Broadcom’s acquisition of Qualcomm proceeds, the dispute with Apple could disappear:

“…Broadcom is already an Apple parts supplier, and it wouldn’t want to jeopardize a good relationship with a negotiation over royalties. The exact percentage that Qualcomm charges in royalties is of the utmost importance to a standalone Qualcomm…But for a merged Broadcom-Qualcomm, the exact amount of the royalty would be less important than a good working relationship with Apple.”

If the dispute is settled, Intel loses its wireless modems deal with Apple. No mobile CPUs + no modems = nothing of substance. Broadcom would be in charge — they would hold all the cards.

As the WSJ notes, Intel’s fears about a Broadcom-Qualcomm merger go beyond Apple too.

A merged Broadcom and Qualcomm would combine market-leading smartphone chips with a strong presence in data centers, two areas Intel has targeted for growth. And Qualcomm’s own proposed purchase of Dutch automotive chip specialist NXP Semiconductors NV would turbocharge such a merger in the automotive market, where Intel has placed one of its biggest bets.

Other are skeptical, pointing not just to the huge cost of buying Broadcom, but likely regulatory hurdles to creating a combined company which would dominate the chip industry. Intel already holds a 90% share of the PC and data center server market.

One thing’s for sure: turning down the iPhone contract was the most expensive mistake Intel ever made, and one that continues to have expensive implications well over a decade later.