How Apple Can Meet The Intel SoFIA Challenge And Cut Its Ties To Qualcomm

Intel's (NASDAQ:INTC) SoFIA systems on chip, now designated the Atom X3 series, incorporate on-chip wireless modems at up to LTE, as have Qualcomm's (NASDAQ:QCOM) SOCs for some time. To stay competitive, Apple's (NASDAQ:AAPL) SOCs for iPhone and iPad also need to incorporate wireless LTE modems. The opportunity to achieve this quickly has recently presented itself: purchase Nvidia's (NASDAQ:NVDA) wireless modem operation.

Nvidia's Loss ...

Just before its earnings report, Nvidia announced on May 5 that it was winding down its Icera wireless modem operations and that it was open to a sale of the business unit. Nvidia had bought Icera for $367 million in 2011, and got an IP portfolio of 550 patents and a company based in the U.K. and France of about 300 employees.

Icera was supposed to be part of the strategy to get Nvidia into the smartphone market by incorporating Icera's digital modem technology directly into an Nvidia SOC, which would become the Tegra 4i. A digital modem converts the data to be transmitted over a wireless network into digital commands used to control a radio transmitter, and similarly for receiving data over a wireless network.

Icera refers to their modems as "software defined", although as an article in Anandtech pointed out, most digital modems provide some level of programmability, such as Qualcomm's GOBI series of standalone modems. Apple uses a Qualcomm GOBI modem in the iPhone 6 and 6 Plus.

Nvidia had the right idea in buying Icera. This was the direction the industry was moving in, part of the general trend of incorporating more and more functionality into the mobile device SOC. Intel had bought the Wireless Solutions business from German chip maker Infineon in 2011 as well. Based on that acquisition Intel has developed a line of standalone modems as well as begun to incorporate them into their own Atom SOCs, heretofore codenamed SoFIA.

The Icera acquisition bore fruit in the form of the Tegra 4i, which incorporated Icera's Cat 4 LTE (Long Term Evolution, also known as 4G) capable modem, which also supported many other wireless standards. Cat 4 LTE is a fairly common standard, also used in the iPhone 6, that supports a maximum download speed of 150 Mbits/ sec.

From looking at the specs for the Icera modem and the Qualcomm chip used in the iPhone 6 (MDM 9625), they appear to be roughly comparable in performance and capability, except that the Icera modem doesn't have the built in WiFi and GPS capability available in the standalone Qualcomm modem.

Why Nvidia couldn't make a go of it in smartphones with the Tegra 4i probably had to do with the strong incumbent position of Qualcomm in the upper tiers of the Android smartphone market, and the fact that Qualcomm could offer a broader range of SOCs all with integrated Qualcomm modems.

Nvidia also ran afoul of the broader market trend that I've so often described in which integrated device makers such as Apple and Samsung (OTC:SSNLF) increasingly rely on their own custom designed SOCs, rather than buying from commodity makers such as Qualcomm, Intel, or Nvidia. As a result, in the past several years commodity manufacturers have bailed out of the mobile device SOC (or application processor) market. These have included Texas Instruments, Freescale, and lately Nvidia.

But it doesn't appear that there was anything wrong with the modem, and I haven't heard of technical issues with the modem as integrated with the Tegra 4i, except perhaps for overheating, which has been endemic in the Tegra 4 series.

... Is Apple's Gain

Even though Nvidia met with no success with the Tegra 4i, it clearly points the way Apple must go in order to retain its advantages over competing mobile devices using Intel or Qualcomm SOCs. Apple must integrate wireless modems into its custom SOCs. The key benefit will be lower cost, and potentially higher performance compared with buying a standalone modem.

Buying Nvidia's Icera unit presents an opportunity to gain capability to design in a competitive LTE modem almost from day one. Keep in mind that there aren't many companies that have achieved LTE modem integration into a mobile device SOC. And Icera is the only one that's for sale.

There are issues with using the Icera modem as is. By virtue of reliance on software, Icera's modem is not the lowest power approach for a given level of LTE capability. However, since Apple will be using a 14 - 16 nm process for the next generation of SOCs, I believe that the more advanced process will relieve any concerns about power consumption. The Tegra 4i is fabricated on TSMC's 28 nm process, so it's two generations back.

And for purposes of keeping up with the ever changing world of wireless standards, software programmability is the way to go. This may help the Icera modem catch up with the most advanced LTE standards, which Intel intends to make available in its standalone modem offerings, although not immediately in the X3 Atoms.

Probably, by the time Apple's next iPhones arrive this September, Qualcomm will also offer a more advanced LTE modem. Whether Apple chooses a Qualcomm or Intel modem for the next iPhone, or splits the order, is anyone's guess, as I discussed in a recent article. But it definitely won't be the Icera modem, even in standalone form.

Apple's purchase of Icera would be for the long-term goal of creating a capability it hasn't had before. As such, Icera is a good match to Apple's historical pattern of buying companies for IP and talent, rather than for specific products. But clearly Icera's current modem would serve as the basis for a future Apple SOC, which could even be in the 2016 iPhone models.

Other factors that may influence Apple include the fact that the price is right. Although Nvidia paid $367 million for Icera, they'll probably accept less, since it appears Nvidia needs to cut the costs associated with Icera regardless of finding a buyer. Also, since Icera is primarily a foreign operation, Apple may be able to make the purchase with part of its foreign cash reserves.

Apple's purchase of Icera also would underscore the continuing difficulties of the commodity IC makers such as Intel and Qualcomm. Both appear to be competing for Apple's modem business, but this business may be superseded by the ongoing technical evolution of the SOC. Continuing progress in shrinking circuits with each process node means that more functionality will be included, inevitably. As it does, opportunities for commodity suppliers to companies such as Apple also shrink.

Both Intel and Qualcomm are the long-term losers of an Apple Icera acquisition.