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Why Tim Cook dropped $1 billion on Intel's modem chips

Byers Market is a daily newsletter from NBC News senior media reporter Dylan Byers that takes you behind the scenes in Hollywood, Silicon Valley, New York and Washington.
Image: Apple CEO Tim Cook at an event in Cupertino, California, on Sept. 12, 2018.
Apple CEO Tim Cook at an event in Cupertino, California, on Sept. 12, 2018.Noah Berger / AFP - Getty Images file

Good morning. 🏛️ The Senate Intelligence Committee has found that election systems in all 50 states were targeted by Russia in 2016, and that the U.S. was totally unprepared to deal with the attack.

What's next: The committee has recommendations for preventing similar attacks in 2020, but the report is so heavily redacted that some key recommendations areblacked out.

Join the Market.

Why Tim Cook bought Intel

Moving the Market: Tim Cook has signed a $1 billion deal to acquire Intel's smartphone modem business, an investment that will give Apple greater control of its hardware production and ownership of crucial intellectual property.

• The deal also advances Apple's pursuit of 5G connectivity, which will provide a boost to iPhone sales in the short-term and is essential to long-term growth.

The big picture: In-house production has always been fundamental to Apple's success. "We believe that we need to own and control the primary technologies behind the products that we make," Cook said in 2009, in what has since become known as "The Cook Doctrine."

• By owning the smartphone modem unit, Apple can bring chip production into dialogue with software and design, rather than relying on a finished product from another company (specifically, Qualcomm).

• By making the iPhone modem more responsive to software and design, and vice versa, Apple will be able to further improve and differentiate its products.

Until then, Apple will continue to buy modem chips from Qualcomm as part of a six-year deal between the two companies. Qualcomm modems far outrank Intel's in terms of speed and performance.

• But that relationship will likely end once Apple can create its own 5G chipsets — which probably can't come soon enough for Cook, given his "frosty relationship" with Qualcomm chief Steve Mollenkopf.

What's next: "Approximately 2,200 Intel employees will join Apple, along with intellectual property, equipment and leases," Apple said in a statement. "The transaction... is expected to close in the fourth quarter of 2019."

What Chris Hughes wants

Big in the Bay, big in the Beltway: Chris Hughes, the Facebook co-founder who has fashioned himself as a leading voice of the anti-Facebook movement, has been meeting with regulators to lay out the case for breaking up Facebook.

• "In recent weeks, Mr. Hughes has joined two leading antitrust academics" — Scott Hemphill and Tim Wu — "in meetings with the Federal Trade Commission, the Justice Department and state attorneys general," NYT's Steve Lohr reports.

• "In those meetings, the three have laid out a potential antitrust case against Facebook," arguing that it has made "'serial defensive acquisitions' to protect its dominant position in the market for social networks."

The big picture: Hughes' meetings with regulators drastically raise the stakes of his break-up-Facebook campaign, which began in May with a New York Times op-ed. He's no longer just an anti-Facebook surrogate; he's now a strategist.

• He even brings "a 39-page slide deck" to these meetings "that makes a point-by-point legal case for breaking up" the company, according to WaPo's Elizabeth Dwoskin and Tony Romm.

The big question: What does Hughes want? Is he so troubled by Facebook and his small role in its creation that he feels compelled to undermine it, or is he hoping for something else: a role in the Elizabeth Warren campaign, a government leadership post, etc.?

• Dwoskin and Romm describe Hughes as "a former executive who believes he created something that is now harmful to society." I'm not sure we should so readily accept the idea that that is his only motivation.

🇺🇸 Talk of the Trail 🇺🇸

Climate control: CNN will host a Democratic presidential town hall on Sept. 4 focused on the climate crisis, while MSNBC and Georgetown will host their own two-day climate-change forum on Sept. 19 & 20.

The big picture, via Georgetown's Mo Elleithee: “Poll after poll shows climate change consistently rates as one of the most important issues on the minds of young voters heading into the 2020 election."

Tulsi Gabbard sues Google

Fear and loathing on the trail: "Rep. Tulsi Gabbard, one of the Democrats seeking the party’s nomination for president in 2020, sued Google on Thursday for suspending her advertising account," my colleague David Ingram reports.

• "According to the suit, Google suspended Gabbard’s advertising account without warning June 28, hours after the end of a Democratic presidential primary debate."

• "She alleges that Google gave conflicting and false reasons for the suspension before reinstating the account hours later... [and] says the suspension was part of an intentional pattern by Google, which the suit calls a monopoly."

• "Google spokeswoman Riva Sciuto said that an automated [fraud prevention] system triggered the suspension... and the account was reinstated shortly thereafter.

The big picture: "The lawsuit adds to a chorus of bipartisan complaints against Google and other tech companies over the power they’ve accumulated as censors and gatekeepers in areas such as politics, advertising and free speech."

Meanwhile.... Alphabet, Google's parent company, beat revenue expectations, sending shares up more than 9 percent.

Market Links

Brian Roberts sees growth in Comcast's internet business (Bloomberg)

Steve Burke unveils plans for NBCU's new streaming service (Variety)

Jack Dorsey teams up with NBC for 2020 Olympics coverage (NYT)

David Benioff and Dan Weiss narrow down their deal options (THR)

Mike Biggane exits Spotify for new role at Universal Music (Variety)

Jim Meyer signs Drake deal

The (audio) streaming wars: SiriusXM/Pandora chief Jim Meyer has signed a creative partnership deal with Drake that will see the creation of a dedicated Drake station, music curated by the artist and collaborations with other talent.

The big picture: The deal with Drake, the most streamed artist of all time, suggests that Steyer may be getting more aggressive about competing with services like Apple Music and Spotify.

The big question: Will this deal see Drake creating exclusive content for SiriusXM and Pandora? If not, it's hard to see how this really moves the needle for Meyer.

Either way, it's more money for Drake.

Why Tarantino's open matters

Talk of Tinseltown: Quentin Tarantino's "Once Upon a Time in Hollywood" is one of summer's "most dramatic moments at the summer box office," since it will test "the appetite for original, adult-skewing Hollywood tentpoles amid a never-ending parade of branded franchises and sequels," THR's Pamela McClintock writes.

The numbers:

• "The critically adored 'Once Upon a Time' cost a reported $90 million before marketing, likely making it the filmmaker's most expensive movie to date."

• "Sony, along with the major tracking services, are predicting a domestic opening in the $30 million range, but rivals and other box office analysts believe it will come in at $40 million or more."

• But... "Since adults don't rush out on opening weekend, the bigger question is the movie's staying power."

The big picture: "Tarantino's ninth film... is a sizable gamble for Sony, where film studio chairman Tom Rothman is determined to deliver a slate that isn't only peppered by sequels and superheroes."

• "You can't give up on originality. That's why this is so important," Rothman tells McClintock. "I really want to believe that there remains room on the big screen for big original stories."

🎞️ What's next: The Weekend. I'm going to see "Once Upon a Time" tonight at the ArcLight.

Bonus: The Ringer's Chris Ryan and Sean Fennessey reflect on Tarantino's best scenes. Ever.

See you Monday.