Tech

Apple is ramping up a new iPhone chip business

Key Points
  • Apple has moved its modem chip engineering effort into its in-house hardware technology group from its supply chain unit.
  • The move is a sign the tech company is looking to develop a key component of its iPhones after years of buying it from outside suppliers.
  • Modems are an indispensable part of phones and other mobile devices, connecting them to wireless data networks.
An iPhone is displayed at an Apple Store on February 1, 2018 in Corte Madera, California.
Justin Sullivan | Getty Images

Apple has moved its modem chip engineering effort into its in-house hardware technology group from its supply chain unit, two people familiar with the move told Reuters, a sign the tech company is looking to develop a key component of its iPhones after years of buying it from outside suppliers.

Modems are an indispensable part of phones and other mobile devices, connecting them to wireless data networks. Apple once used Qualcomm chips exclusively but began phasing in Intel chips in 2016 and dropped Qualcomm from iPhones released last year.

Johny Srouji, Apple's senior vice president of hardware technologies, took over the company's modem design efforts in January, the sources said. The organizational move has not been previously reported.

Srouji joined Apple in 2008 to lead chip design, including the custom A-series processors that power iPhones and iPads and a special Bluetooth chip that helps those devices pair with its AirPods wireless headphones and other Apple accessories.

The modem efforts had previously been led by Rubén Caballero, who reports to Dan Riccio, the executive responsible for iPad, iPhone and Mac engineering, much of which involves integrating parts from the company's vast electronics supply chain.

Apple declined to comment. Technology publication The Information previously reported that Apple was working to develop its own modem chip.

The Cupertino, California-based company has posted job listings for modem engineers in San Diego, a hub for wireless design talent because of Qualcomm's longtime presence there and a place where Apple has said it plans to build up its workforce.

Apple's effort to make its own modem chips could take years, and it is impossible to know when, or in what devices, such chips might appear.

"When you're Apple, everything has to be good," said Linley Gwennap, president of chip industry research firm The Linley Group. "There's no room for some substandard component in that phone."

5G on the horizon

Apple's investment in modem chips comes as carriers and other phone makers are rolling out devices for the next generation of faster wireless networks known as 5G.

Rival handset makers Samsung Electronics and Huawei Technologies already make their own modems.

Making its own modem chips would likely cost Apple hundreds of millions of dollars or more per year in development costs, analysts said, but could save it money eventually.

Modem chips are a major part of the cost of Apple devices, worth $15 to $20 each and likely costing Apple $3 billion (2 billion pounds) to $4 billion for the 200 million or so iPhones it makes a year, said Bernstein analyst Stacy Rasgon.

Apple may also benefit by combining its modem chips with its processor chips, as Samsung, Huawei and most other phone makers do. That saves space and battery life, two important considerations if Apple introduces augmented reality features into future products.

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Key Points
  • Dialog Semiconductor CEO Jalal Bagherli noted that many companies in the electronics space have supply chain exposure to China.
  • However, he added that there were no current signs pointing to an impact on Dialog's business operations.
  • He said Apple has been a "great partner" to Dialog over the last 12 years — Apple bought part of the firm's business last week in a $600 million deal.