In a recent development, Qualcomm (QCOM.O) has announced an extension of its partnership with tech giant Apple (AAPL.O) to supply 5G chips until at least 2026. This strategic move comes at a crucial time as Apple faces growing challenges in the Chinese market and seeks to strengthen its supply chains worldwide. The extended deal, worth billions of dollars, surpasses initial expectations and hints that Apple is not in a hurry to introduce its own modem, despite transitioning its computers to in-house processing chips.
Qualcomm’s shares saw a 4% increase in early afternoon trading following the announcement, emphasizing its position as a leading designer of modem chips that connect mobile devices to data networks. Meanwhile, Apple’s shares experienced a 0.5% uptick in response to this partnership.
This collaboration builds upon a previous chip supply agreement signed between Qualcomm and Apple in 2019, marking the end of a long-standing legal dispute. With the 2019 supply agreement expiring this year, the iPhones expected to be unveiled this week will be the last devices produced under that deal.
Under the terms of the new agreement disclosed on Monday, Qualcomm will continue supplying Apple with chips for their annual phone releases until 2026. While specific financial details of the deal remain undisclosed, Qualcomm stated that the terms are “similar” to their previous arrangement. According to UBS analysts, Qualcomm’s chip sales to Apple in 2022 amounted to an estimated $7.26 billion.
Additionally, Qualcomm affirmed that its patent licensing agreement with Apple, established in 2019, remains intact, with an expiry date in 2025 and the option to extend for an additional two years.
Analysts view this partnership as a strategic move by Apple to fortify its global supply chains, especially in light of mounting challenges in the Chinese market. Furthermore, it suggests that Apple may be delaying or scaling back its plans to develop its own chip production capabilities.
While Apple continues its work on proprietary modem technology and made a significant investment by acquiring Intel’s modem unit in 2019, the company has not provided a timeline for the widespread adoption of its in-house chips.
Qualcomm’s financial projections indicate that, by 2026, only a fifth of Apple’s iPhones will feature their chips. However, it’s worth noting that a similar projection in 2021 turned out to be conservative, with all iPhone 14 models released last year utilizing Qualcomm modems. Furthermore, Qualcomm’s CFO, Akash Palkhiwala, updated his predictions for the 2023 iPhones, suggesting that the “vast majority” of them will incorporate Qualcomm modems.
