Qualcomm has disclosed on Monday that it has reached an accord with Apple to supply 5G processors, extending at least until 2026. This development comes at a time when Apple faces increased challenges in China and aims to fortify its global supply chains.
Despite Apple’s shift to using its own-designed chips for all its laptops, this deal underscores Apple’s decision not to rush the release of its own modem. Instead, it prolongs a partnership with Qualcomm that is worth billions of dollars for at least three more years than originally expected.
Qualcomm shares saw a 4 percent increase in early afternoon trading following the announcement, while Apple’s stock increased by 0.5 percent. Qualcomm, headquartered in San Diego, California, specializes in designing modem chips that connect mobile devices to mobile data networks. The two companies had a protracted legal dispute, which concluded in 2019, leading to the chip supply agreement.
The iPhones expected to be introduced on Tuesday will be the last batch launched under the previous supply agreement, set to expire this year. Under the new agreement, Qualcomm will supply semiconductors for Apple’s new phones until 2026. While the deal’s exact value was not disclosed, Qualcomm stated that it is “similar” to the previous agreement.
According to UBS analysts, Qualcomm is projected to sell $7.26 billion worth of chips to Apple in 2022. A patent licensing agreement between Qualcomm and Apple from 2019 remains in effect, and they have the option to extend it for an additional two years until 2025.
Susannah Streeter, the head of money and markets at Hargreaves Lansdown, noted, “At a time when Apple is running into increasing challenges in China, reinforcing its supply chains elsewhere is a priority, and it appears the company is rolling back or at least delaying plans to go at it alone in more areas with its own chip production.”
Apple had acquired Intel’s modem division for $1 billion in 2019 and is working on its modem technology. However, the pace at which Apple intends to expand its use of its own chips remains uncertain. Qualcomm stated that by 2026, only about a fifth of Apple’s iPhones would use Qualcomm’s chips, but a similar prediction made by Qualcomm in 2021 proved overly conservative.
Akash Palkhiwala, Qualcomm’s CFO, revised his 2023 iPhone projections last year, expecting the “vast majority” of them to feature Qualcomm modems, which will be unveiled this week.
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