As VentureBeat’s resident Apple and next-generation 5G cellular expert, I raised a yellow flag back in February that Apple was facing at least four challenging roads to releasing a 5G iPhone, and might be forced to make tough decisions to join the international race to 5G. I concluded my article by noting that “if the company’s willing to risk sales, its reputation, and its stock price, it could be 2020 before we see the first 5G iPhone,” which seemed like a long shot back then.
But late on Friday, a report claimed that Apple will indeed go down that path. Instead of choosing another 5G chip supplier, Apple apparently decided to give its current partner Intel extra time to create an iPhone-worthy 5G modem, a decision that will delay the first 5G iPhone’s launch until late 2020. Though the first 5G consumer devices are already in the process of debuting this fall alongside early 5G networks, the first 5G smartphones are expected in early 2019, putting Apple around a year and a half behind its competitors.
If you invest in Apple, this report should concern you at least as much as Apple’s unexpected announcement that it will soon stop disclosing quarterly iPhone unit sales. Despite claims from Apple fans that the company is infallible, the reality is that Apple does make mistakes, and it’s walking a particularly dangerous path with its approach to 5G. Here’s why.
Apple and innovation
Apple has positioned itself as an innovator leading the consumer technology industry. Virtually every one of its product announcements explicitly or implicitly reinforces this theme, from spotlighting the consistently impressive processor design feats in its latest A-series chips, or millimeter-level bezel-shrinking changes wrought by its engineers and industrial designers. Apple now self-develops so much of its products that its executives have publicly bristled at the suggestion that it’s not innovative.
Realistically, however, Apple doesn’t create products in a vacuum. Yes, it either designs or cooperatively designs its enclosures and many if not most of the parts inside them. It also creates most of the key software and services those products depend upon.
But Apple also acquires, hires, sources, licenses, and sometimes even copies whatever it needs for new products. That is a reality of consumer technology — every company does this. It is simply not possible for any business to create new products without using outside technologies. I would argue that 5G is the single biggest example of that fact.
The importance of 5G
If you ask pretty much any major technology company (or government) right now what the most important upcoming technology is, they’ll all answer either “5G” or “AI,” with an increasing number saying the former. 5G is expected to so fundamentally transform society that multiple heads of industry and government have described it as the catalyst for a “fourth industrial revolution,” enabling personal communications, coordinated computing, and new innovations the likes of which are only dreams today.
Developing 5G as a global cellular communications standard was a decade-long, multi-company process, bringing together thousands of participants from across the world. No single company owns all or even most of the patented technologies found in 5G, and though multiple companies are making 5G modems, they each individually need to license other companies’ innovations, then package them in chips that will fit and work inside devices.
Apple doesn’t make its own cellular modem, even though that part is the key differentiator between its top-selling iPhones and its all but forgotten iPod touches. Modem engineering was difficult 10 years ago, and has become even more challenging in the 5G era, as companies struggle to shrink technologies previously housed in radar systems and full-body scanners down to devices that will fit in pockets.
At this point, Qualcomm appears to be the industry’s leader in 5G chipmaking, for several reasons:
- Around 20 well-known smartphone, tablet, and computer makers are actively making devices based on Qualcomm’s Snapdragon X50 modem.
- The first 5G consumer devices, Inseego’s 5G home modems and Netgear’s Nighthawk 5G hotspot, use Qualcomm’s components.
- Qualcomm is on track to use the cutting-edge 7-nanometer manufacturing process to produce the smallest 5G chips, after starting with a 10-nanometer part.
- The company has already completed its second-generation 5G antenna solutions for smartphones, having achieved a 25 percent size reduction over first-generation parts announced earlier this year.
- Qualcomm is providing steady public updates on release dates and hardware advances, while rivals have generally remained quieter — not necessarily a bad sign for everyone else, but not confidence-inspiring.
While Intel hasn’t publicized its inner workings to the extent Qualcomm has, its consumer-facing 5G hardware doesn’t appear to be close to Qualcomm’s at this stage. While Intel has offered 5G-related events and announcements this year, they’ve generally been soft news: public discussions with media companies about how 5G will change things, rather than announcements of new chips, devices, or partnerships. I’ve gotten the sense that Intel has decided to initially become more involved in making 5G network hardware than consumer devices, likely for engineering reasons.
Intel’s most noteworthy “5G” announcement this year — the supposed debut of a ‘prototype’ 5G HTC Vive VR headset — turned out to be just a current-generation Vive equipped with a WiGig adapter. As of now, the first Intel-based 5G devices aren’t supposed to ship until late in 2019, and even then, they’re supposed to be computers, not tablets or smartphones.
Why Apple picked Intel over Qualcomm for 5G
With Qualcomm seemingly in the lead on technology, Apple’s supposed decision to rely on Intel 5G modems has only two possible explanations: Apple is either truly unwilling to settle a long-running legal dispute with Qualcomm, or it’s playing a risky game to extract the maximum possible settlement terms in that dispute. There’s no other plausible reason for what’s going on.
If you haven’t been following the dispute, Apple claims Qualcomm has been illegally charging too much for modem technology licenses, and Qualcomm says that Apple has been both underpaying and using Qualcomm’s trade secrets to help Intel develop competing products. Qualcomm’s CEO has publicly said that he’s willing to settle the dispute; Apple has not.
Because of this situation, Apple has all but entirely locked itself out of using Qualcomm modems, leaving only a few other alternatives, including Intel, Samsung, Huawei, and smaller developer MediaTek. None of these options is practical: Apple doesn’t want to buy more parts from Samsung, won’t be able to use U.S.-banned 5G technology from Huawei, and can’t source a smartphone-sized MediaTek modem until late next year. Unless it cuts a deal with Samsung or Qualcomm, it’s probably going to be late to the 5G race.
Choosing Intel means accepting that a 5G iPhone will be at least second-generation late: Intel apparently won’t release a smartphone-ready 5G modem in 2019. At Mobile World Congress earlier this year, Intel’s only 5G demonstrations relied upon oversized kickstand-sized antenna systems, leading to speculation that the company couldn’t squeeze its XMM8050 modem into smaller enclosures. Even something as large (but thin) as an iPad would likely be a stretch.
Fast Company claims that Intel is working on a second-generation 5G chip for 2020 called the XMM8161, which Apple will apparently use to prototype and test the first 5G iPhone — that’s short of a commitment to actually use the chip. The report claims that Intel is still struggling to reduce thermal issues and battery drain with its chips, problems that other 5G chipmakers have publicly acknowledged in months past. Apple reportedly is giving Intel the chance to fix its issues over the next year and a half, with a plan to fall back to MediaTek — not Samsung, not Huawei, not Qualcomm — if Intel fails.
Why this is a problem for Apple
Back in February, I said that I felt “the stakes for Apple are too high at this point” for the company to miss 5G’s first year, even though there was “always the possibility that Apple could sit out the first generation of 5G devices,” as it did with 3G and 4G. As I saw it, the key difference between 2007-2011 Apple versus 2018’s Apple is leadership: Back in 2007, Apple merely hoped (but failed) to sell 10 million iPhones in its first year in the phone business, and in 2011, it wasn’t the world’s leader or near-leader in smartphone sales.
Since then, Apple’s sales have roughly tripled, plateauing at over 210 million iPhones per year versus just over 72 million in 2011. Over the past two years, Apple has either been the number one or two smartphone maker in each quarter, most recently jousting with Samsung and Huawei. It’s one thing to sit out the first year or two of a major technology shift if you don’t care about being an innovation or sales leader, but entirely another if those things matter to you.
Admittedly, Apple claims that it doesn’t care about sales — only making the best products in the world. It abandoned the market-dominating iPod line to chase a growing fraction of the much larger and more lucrative smartphone pie. Similarly, the company’s widely pilloried decision to stop reporting iPhone unit sales as of its next fiscal quarter could be interpreted as a sign that it doesn’t care as much about being a unit sales leader as it does about making lots of money. Even without respecting or agreeing with that decision, I can understand the message to investors: Judge Apple by how much money it makes, not the number of things it sells.
But I would argue that Apple’s ability to keep making money is bounded both by its perceived innovation and its ability to reach an increasing number of customers, both of which are about to be heavily impacted by 5G. The next-generation cellular technology is going to make its way into everything from phones and watches to AR glasses, cars, parking lots, highways, factories, and farms. It will empower holographic video calls, high-resolution vehicular entertainment, and all sorts of use cases people can’t imagine right now. 5G could also let your phone serve as a replacement for your home broadband connection, making it even more essential than it already is today.
Devices without 5G chips won’t have the bandwidth to deliver these sorts of experiences, regardless of how powerful their cameras or other chips may be. Even if Apple has been developing similar ideas in its labs, its competitors will be the ones to show off and sell these exciting features first. If Apple falls a generation or two behind 5G rivals, the “innovation” question will rear its ugly face again.
And while it waits for Intel to get its modem ready, Apple will be forced to spend the next year or two trying to convince customers to keep buying devices — notably expensive ones — that will soon be as generationally antiquated as the first 2G iPhones were when the iPhone 3G came out. How will that look to its loyal customers in 2020?
I don’t own Apple stock, but if I was an investor, I would certainly hope that Apple has a better plan for the next two years than to keep milking its existing customer base for more money. During a period of major technological change, Apple could easily use this opportunity to lower prices and hook millions of new customers across the world on its devices. Instead, it appears to be doing the opposite, and its many competitors may well benefit from that decision.