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Intel Plans to Trim 5G Smartphone Modem Loss With IP Auction

Zacks Equity Research

Intel INTC is reportedly divesting approximately 8,500 patents, after pulling out of 5G smartphone modem business in April.

The auction is likely to take place in two phases, first comprising 6,000 patents, which are part of its cellular IP portfolio pertaining to 3G, 4G and 5G standards. Meanwhile, there are additional 1,700 patents related to “wireless implementation technologies.” Nonetheless, the semiconductor giant is reportedly retaining “significant wireless assets”.

Per IAM report, the auction will be monitored by “Nader Mousavi of Sullivan & Cromwell.” Intel is likely to receive bids around early August. However, there has been no official announcement from the company in this regard.

Exploring the Facets of the Deal

Intel had been reportedly delaying production targets of its 5G modem chips to its ‘exclusive’ customer, Apple AAPL. This dented Apple’s intention to release its 5G iPhone (even in 2020).

Notably, Apple inked a multi-year license and supply agreement with Qualcomm, putting a check on ‘all ongoing litigations’. This news came simultaneously with Intel opting out of 5G smartphone modem business.

It, therefore, makes sense to consider Apple as a plausible buyer of the patents pertaining to 5G smartphone business and other wireless technologies. Intel’s IP portfolio might help Apple accelerate its efforts in bringing a 5G-ready iPhone to market.

China-based telecom giant Huawei can be another potential bidder, as it is looking to strengthen its 5G business, which can be enriched with Intel’s IP portfolio. However, whether the temporary relief on Huawei-related ban allows acquisition of Intel’s patents remains to be seen.

Other chip makers in the industry, including Qorvo, Skyworks, Broadcom and Qualcomm, may consider the auction seriously as these firms will benefit from the strengthening of their 5G businesses.

Also, the significant number of strong patents at stake is likely to draw comparison with a similar asset sale by Canada-based telecom player, Nortel, in 2011, which raked in approximately $4.5 billion.

Wrapping Up

Intel’s research and development (R&D) initiatives, aimed at reaping high growth and high-value opportunities, set it apart from its peers. In 2018, the company’s R&D investments came in at 19.1% of total revenues.

Intel Corporation Revenue (Quarterly)

Intel Corporation Revenue (Quarterly)

Intel Corporation revenue-quarterly | Intel Corporation Quote

The auction is expected to minimize the losses from its failed 5G smartphone modem business. Per WSJ, Intel is incurring loss of $1 billion annually on its modem operations.

Moreover, the company is evaluating prospects in 5G for IoT and data center, considering that the technology complements high growth domains. Notably, IDC expects worldwide IoT spending to reach $745 billion in 2019, indicating year-over-year increase of 15.4%. The analyst firm expects the tally to hit $1 trillion in 2022, which enhances business prospects for Intel.

Zacks Rank & Key Picks

Currently, Intel carries a Zacks Rank #3 (Hold).

Some better-ranked stocks worth considering in the broader sector are Rosetta Stone Inc. RST and j2 Global, Inc. JCOM, each sporting Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Rosetta Stone and j2 Global is pegged at 12.5% and 8%, respectively.

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