Apple is renewing Qualcomm’s contract to cover iPhone launches through 2026 in a sign that its own modem chip is not yet ready
Apple is extending an agreement to source advanced semiconductors from Qualcomm for three more years, a sign that its ambitious effort to develop the chips itself is taking longer than expected. Qualcomm shares rose sharply on the news.
The new pact will cover “smartphone launches in 2024, 2025 and 2026,” Qualcomm said in a statement on Monday. The companies’ agreement was supposed to end this year, and the latest iPhone – due out Tuesday – should be one of the last based on the Qualcomm modem chip.
Instead, Qualcomm will maintain its lucrative position within Apple’s supply chain. The iPhone maker is Qualcomm’s largest customer – accounting for almost a quarter of sales, according to Bloomberg. And their relationship helps bolster Qualcomm’s claim to have the best smartphone modem, a crucial component that allows devices to connect to the Internet and make calls. Starting with the iPhone 12 generation, the chip supports faster 5G networks.
“This agreement underscores Qualcomm’s track record as a sustainable leader in 5G technologies and products,” the San Diego-based chipmaker said. Although the financial terms of the new contract were not disclosed, Qualcomm said it was similar to its previous agreement in 2019.
Qualcomm shares rose more than 8 percent in premarket trading in New York on Monday. Apple rose less than 1 percent.
For Apple, this move suggests that building a modem component was more difficult than expected. The effort has been in the works for years. The Cupertino, California-based company launched the project in 2018 and then strengthened it with the acquisition of Intel Corp’s smartphone chip business. in 2019.
By 2020, Apple announced the development of its own modem as a “key strategy shift.” Johny Srouji, his chip boss, said at the time that work was progressing at full speed.
Some analysts expected the component to be ready for the iPhone in 2023, but Qualcomm quashed those speculations last year. Bloomberg News previously reported that Apple was still aiming to ship the modem in either late 2024 or early 2025. Now the project has a longer period of time before it has to be finished.
It was a difficult undertaking: Apple needs a chip that can easily connect to various mobile networks around the world while offering performance as good as or better than Qualcomm’s. There are problems with battery life and there are bureaucratic hurdles, such as the certification of the modem by authorities.
The company’s internal chip push – under the Apple Silicon brand name – has been more successful elsewhere. Apple has replaced the Intel processors in its Macs over the past three years without much issue, and the battery life and performance gains of these devices have been a selling point.
The company has also been working to replace other semiconductors in the iPhone, including a key Broadcom part. Like Qualcomm, Broadcom counts Apple as one of its largest customers. As part of this initiative, Apple has increased staff in Southern California, where both Qualcomm and Broadcom have offices, to recruit chip talent. The company has teams working on the new wireless chips in Cupertino, San Diego and Germany.
The new agreement comes just a day before Apple’s biggest announcement of the year. At a presentation on Tuesday, the company will unveil the iPhone 15 as well as updated Apple Watch models and AirPods. It is hoped that the products will help reverse the decline in sales that has been ongoing for three quarters. The iPhone is Apple’s single biggest earner, accounting for around half of its sales.
Qualcomm, the world’s largest smartphone chip maker, has had a turbulent relationship with Apple over the years.
Apple has taken legal action against a central tenet of Qualcomm’s business model: charging royalties for patents that govern the fundamentals of how mobile networks work. Apple ultimately lost that battle and, like other major phone makers, agreed to license Qualcomm’s technology. This agreement runs until 2025, with the option to extend it for another two years.
Because mobile operators around the world use a wide range of devices and standards, it is difficult to develop technology that works seamlessly. A modem chip must be able to quickly connect to older 3G and 4G networks as well as more modern 5G systems. Since the advent of data-centric phones, Qualcomm has been a leader in the field.
Although the new contract runs until 2026, Apple could start using its own modem before then. The company plans to introduce the component gradually.
In fact, Qualcomm only assumes that it will have a 20 percent share of the business when the iPhone launches in 2026. Still, the company used similar language to the original agreement, suggesting it may be a conservative forecast.
© 2023 Bloomberg LP
