Inside Apple’s shaky plan to deliver a 5G iPhone in 2020 [Updated]

[Updated with Intel comment Wednesday 11:30 p.m. Pacific Time]

As of now Apple plans to release a 5G iPhone in 2020. But an increasingly stormy relationship with its 5G modem supplier Intel could prevent that from happening.

After a gargantuan effort, Intel managed to get its modem chips into some iPhone 7 units, and was the sole modem provider for last year’s iPhone XS, XS Plus, and XR.

The chip giant was to be the sole provider of the 5G modems in the 2020 iPhones, too, but it has been missing deadlines for the development of the chip, the XMM 8160 5G modem, a source with knowledge of the situation says.

In order to deliver big numbers of those modems in time for a September 2020 iPhone launch, Intel needs to deliver sample parts to Apple by early summer of this year, and then deliver a finished modem design in early 2020. Intel said in November that it expected to ship the 8160 5G modem in the second half of 2019. The company, responding to this story, pointed me to that same statement. “As we said in November 2018, Intel plans to support customer device launches in 2020 with its XMM 8160 5G multimode modem,” a company representative said in an email late Wednesday.

But Apple has lost confidence in Intel to deliver the chip, our source says.

Difficult client

From the Intel side, the job of managing the Apple relationship has been a difficult one–the role has already seen at least three project managers, our source says.

Apple is a famously demanding client. Its continued modem orders have always been conditional on Intel’s ability to keep up with development and fabrication deadlines. Apple also negotiated an attractive price for models that leaves Intel making relatively little profit. Meanwhile, Apple–because it’s Apple–demands to be prioritized above all other Intel customers.

So why did Intel bend over backwards to wrest the Apple modem business away from Qualcomm? It’s mostly chip-making economics. Intel’s chip fabricating platforms are extremely expensive to build. The company used a 14 nanometer process for the 7560 modems used in the 2018 iPhones, but it now must move to a 10nm process and then a 7nm process to keep up with competitors such as TSMC. The Apple business was attractive to Intel because it was a chance to keep its fab busy with huge orders of parts that are all the same and therefore cost-efficient to produce in volume.

But the Apple business can also hurt Intel. Because Apple demands that its orders be first in line for Intel’s fab, Intel is forced to lower the priority of higher-margin chip orders, such as chips for data center servers. Intel, our source says, has been internally conflicted over the Apple business. Intel’s new CEO, Robert Swan, is a relative outsider who only joined Intel in 2016 as its chief financial officer. Coming from that background, Swan may take a practical view of the Apple project and ask why the company shouldn’t focus on more profitable business lines in more familiar categories.

Change in the wind

Meanwhile Apple appears to be readying itself to design its own modem chips. The company now has a team of between 1000 and 1200 engineers working on the modem chips for future iPhones, our source says. Apple has recruited RF engineers from both Intel and Qualcomm to work in a new development facility in San Diego, our source says, and the development operation has been ramping up quickly. It is possible that future iPhone modem chips could be designed at that facility by Apple employees, and then fabricated by TSMC or Samsung. But that effort is likely about iPhones for 2021 and beyond.

For 2020, none of Apple’s options look ideal. “We do not believe [Intel] will be ready with a single chip backward compatible 5G modem, while others like Samsung/Mediatek are unlikely solutions either technically (Mediatek) or practically (Samsung),” writes UBS analyst Timothy Arcuri in a research note on Wednesday.

As a matter of fact, Apple has recently held talks with both Samsung and Mediatek about supplying modem chips in the near term, our source says. Samsung wants to sell its 5G modem for use in non-Samsung phones. But our source agrees with Arcuri that neither Samsung nor Mediatek is likely to be in a position to supply the modems for a 5G iPhone in 2020. Which means that for the 2020 5G iPhone, at least, it’s likely Intel or bust for Apple.

Our source says that it would make the most business sense for Apple to go back to Qualcomm for its 5G modem chips. But the legal dispute between those two companies has gotten personal, and egos are involved, so the companies collaborating on 5G by 2020 seems unlikely.

Apple didn’t immediately respond to a request for comment.