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Apple’s Spectacular Failure to Replace Qualcomm

Apple’s Spectacular Failure to Replace Qualcomm

The Six Five Team discusses Apple’s Spectacular Failure to Replace Qualcomm.

If you are interested in watching the full episode you can check it out here.

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Transcript:

Daniel Newman: Apple’s spectacular failure to replace Qualcomm. Now this is not your and my headline.

Patrick Moorhead: Exactly.

Daniel Newman: This is the Wall Street Journal’s headline, and Apple and Tim Cook must’ve been absolutely, what would I say? Pleased, excited, staggering happiness after it saw this title.

Patrick Moorhead: How funny is this though? This is written by Aaron Tilley and we saw Aaron the week before, so he’s literally conjuring this and we’re talking to him and he’s not giving up. He didn’t bring this up to his credit, but good job, Aaron.

Daniel Newman: Yeah, and this was a piece that a few weeks ago, Pat, the announcement that Qualcomm got the big contract from Apple came out and this kind of happened in a really busy week. This was the Arm week, this was Apple’s new launch week. This was, so it kind of got a little bit muted in the middle of that, but this was a multi multi-billion dollar deal for Qualcomm. It gave some additional legs. Qualcomm had been trying to convince the investor class that losing Apple was going to be something it was prepared to do. And it was, but how much better for a Qualcomm if it can keep providing to Apple for another two to three years? It’s three years in the contract.

And in your and my opinion, when they first came out with this news at the end of their long settlement after Apple tried to sue Qualcomm into selling itself to Broadcom, that’s not exactly how it happened. But if you piece it all together, they were trying to weaken Qualcomm substantially and then basically potentially maybe see it sold to a company they had a better relationship with. Again, speculation. I’m putting that out there. Lawyers, I’m just saying. But long and short was you and I both said, Pat, it ain’t happening. They’re not going to get this done. Apple bought, what was it? Infineon?

Patrick Moorhead: Intel bought Infineon.

Daniel Newman: Infineon which was the business that Intel was supposed to be able to build the 5G modem. That was the split in Apple’s last 4G phones. They were able to buy that in split, but throughout that entire time, the Qualcomm part always outperformed the intel part. And as that transition to 5G got closer, Intel’s group could not make it. So Intel ended up having to shed that business on a fire sale to Apple with the hope that Apple could bring these resources in and ultimately figure out how to build this 5G RF system that has proven to be nearly impossible.

Now this article, Pat, basically exposed and it was rehired all over the internet that effectively it’s been a “spectacular failure”. And this goes back to 2018 was when this really started. So we’re now talking five years. And the idea was is Apple believed it could make more money if it could build its own chip like it’s done in so many other parts as it’s tried to vertically integrate. This is the Tim Cook special. And basically what’s ended up happening is with a few parts from namely Qualcomm and Broadcom, it’s either been determined they can’t do it more efficiently or they can’t do it at all.

And so in this case, this is the, “We can’t do it at all.” They were trying, Pat, right up to the deadline of last year. This phone was supposed to be the first one that had this new Apple part and not only they couldn’t make it small enough and they couldn’t make it perform. So these things were overheating, they were too large, they were non-performant. And effectively Apple had to go crawling back to Qualcomm begging for its part, which was super interesting, Pat, because this had to be an absolute nightmare for Apple. Pat, are we the pilot or the passenger? What’s going on here?

Patrick Moorhead: I don’t know, dude.

Daniel Newman: And in the end now what’s happening is Apple’s got chips that are probably three to maybe even five years behind when it comes to an RF modem system. And we’re looking at 2026 or later before Apple’s going to be able to make its own part. Having said that, Pat, I will say while I was a 100.1% sure that they were going to have to come back for this round, I do feel the next round I will be surprised if they have to come back again. This is my early prediction, but over the next three years I’ll be surprised if they aren’t able to make this happen.

Patrick Moorhead: So I know we’re coming on time, but I am going to get my fill here.

Daniel Newman: Yeah, I’m not rushing. Go, go.

Patrick Moorhead: I told you so. Not you, Daniel, but everybody out there. In 2019, I said this was going to be a stretch. Intel was 18 to 24 months behind when they bought this. And my statement was, “How much money and how long to catch up?” It took Samsung and Huawei eight years to field a competitive motive and they own the network. Okay?

Daniel Newman: They never were that competitive.

Patrick Moorhead: Right. And the game changed, right? It’s not just a modem game, it’s a 5G modem plus RF game. That’s what I said. July 25th, 2019. Now I never said they couldn’t do that. I said it was going to be very, very painful to get there. And let me just take a quote from this article, “The engineering teams working on Apple modem chip have been slowed by technical challenges, poor communications and managers split over the wisdom of trying to design the chips rather than to buy them.”

So they don’t even have internal alignment on the strategy, Daniel. Now that could be between the semiconductor folks and the iPhone folks, okay? Because the iPhone folks, they want a competitive modem and they want to maybe save a little money. But Apple is notorious and yes, I’ve been recruited by Apple before. I didn’t take the job by the way. I never said that publicly, but there we go. And they operate in hives. And these hives don’t talk to each other. They’re not allowed to talk to each other. But that’s also one of the ways that Apple gets secrecy. You cannot do a modem by being secretive and being in your pods and not talking to each other. So Intel’s way of doing work does not apply to doing modems in this case.

Here’s the other thing, there’s I think, yes, we’re to four modem vendors. You have to invest in research. Do not confuse research with research and development. Research is 10 years out. You are defining the telecommunication standards in 10 years. If you’re not investing in that and you’re not in the standard, you will be late. So how is Apple who doesn’t take front and center on the standards boards because they’re secret, but modems can’t be secret. They have to communicate with everything.

And it’s not just 6G. It’s 6G, 5G, 4G, 3G, 2G. These systems have to interoperate. You have to be able to make a phone call on a 2G network, not just stay in this network. So there’s historical baggage, which I think they got from Intel, but there’s also the testing that you have to do and the trade-offs in the RF, and that RF subsystem needs to talk like five languages at the same time.

So what’s my final point? How long is the board of directors going to let this lunacy go on? I think there were quotes around, I’m paraphrasing, Apple hates Qualcomm, but when does common sense and pragmatism come in and say, you know, this just isn’t worth it. I need to put these thousands, I mean thousands, maybe tens of thousands of resources on maybe making a better processor or a GPU or an NPU. Intel and Qualcomm and AMD are after Apple on all of this other intellectual property and processors, but board of directors, investors, this is a spectacular fail to replace Qualcomm. Not my words. Wall Street Journal, Aaron Tilley. I’m going to leave it at that.

Daniel Newman: And we might, based upon historical commentary, agree.

Author Information

Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.

From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.

A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.

An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.

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