In a strategic move amidst evolving challenges in Chinese market, Qualcomm has announced a significant agreement with Apple, solidifying the supply of 5G chips until at least 2026.
In a strategic move amidst evolving challenges in the Chinese market, Qualcomm (QCOM.O) has announced a significant agreement with Apple (AAPL.O), solidifying the supply of 5G chips until at least 2026.
This partnership extension surpasses earlier expectations, demonstrating Apple’s commitment to Qualcomm’s technology despite the company’s transition to its proprietary processing chips for computers.
Qualcomm, renowned as a leading designer of modem chips connecting phones to mobile data networks, experienced a notable 4% surge in its shares during early afternoon trade, reflecting the market’s positive reception. Simultaneously, Apple shares saw a 0.5% increase in value.
The groundwork for this latest agreement was laid in 2019, following a prolonged legal dispute between Qualcomm and Apple, resulting in a chip supply deal. As the previous supply agreement is set to conclude this year, the forthcoming iPhones, expected to be unveiled on Tuesday, mark the final chapter under this existing arrangement.
Under the freshly inked accord, Qualcomm commits to providing Apple with 5G chips for upcoming phone models each year through 2026. While specific financial details remain undisclosed, Qualcomm has indicated that the terms are in line with the prior agreement.
As of August 3, UBS analysts estimated Qualcomm’s chip sales to Apple for the year 2022 at approximately $7.26 billion, underscoring the significant scale of their collaboration.
Furthermore, Qualcomm affirmed the continuation of a patent licensing deal struck with Apple in 2019. This agreement is slated to expire in 2025, with an option for a two-year extension.
Notably, this development comes at a pivotal moment for Apple, which is navigating challenges in the Chinese market. Strengthening its supply chains beyond China has become a strategic priority, potentially indicating a recalibration of the company’s plans for independent chip production.
While Apple has invested $1 billion in acquiring Intel’s modem unit in 2019, signaling its intent to develop proprietary modem technology, the timeline for full-scale integration remains undisclosed.
Qualcomm, in projecting the future landscape, anticipates that by 2026, only a fifth of Apple’s iPhones will incorporate its chips. However, past predictions from Qualcomm regarding its collaboration with Apple have been surpassed, notably with the release of iPhone 14 models in the previous year, which exclusively featured Qualcomm modems.
Akash Palkhiwala, Qualcomm’s Chief Financial Officer, has also updated his outlook for the 2023 iPhone lineup, expressing expectation that the “vast majority” of these devices will integrate Qualcomm modems.