Qualcomm Inks Deal With Apple to Supply iPhone Chips Through 2026
Agreement comes as Apple has been trying to build its own modem chips to stop using Qualcomm’s
Qualcomm QCOM 3.40%increase; green up pointing triangle reached a three-year deal with Apple AAPL -0.04%decrease; red down pointing triangle to supply the iPhone maker with 5G communications chips, the latest sign that Apple’s effort to make them in-house has yet to bear fruit.
The deal might indicate that Apple’s long-running effort to develop its own modems isn’t making its way into the company’s flagship phones any time soon. Apple bought Intel’s smartphone-modem business in 2019 for $1 billion, bringing on some 2,200 staff members and a portfolio of patents. Intel also had struggled to develop 5G modems and had been losing around $1 billion a year on the operation.
Qualcomm said Monday it would supply Apple with the modem chips for smartphone launches in 2024, 2025 and 2026, in a deal with terms similar to a previous arrangement between the companies.
Qualcomm shares rose 4.1% to $110.52 in early trading. Prior to Monday, the company’s stock had fallen by 20% in the past year amid dropping demand for smartphones. Qualcomm didn’t say how much its newest deal with Apple was worth. Apple shares were up 47 cents to $178.61 in early trading Monday.
Past supply deals have been lucrative for Qualcomm and expensive for Apple. Sales of modems to Apple were about $7.26 billion in Qualcomm’s last fiscal year, or about 16% of its overall revenue, according to a UBS estimate from last month.
Apple has a long record of developing its own technology and reducing its reliance on outside chip vendors. In 2010, it launched its first processing chip for its iPad and iPhone products. Over the years, these internally built mobile chips have helped Apple gain an edge over its Android phone rivals in performance and battery life. Android phones mostly rely on the same third-party chip vendors such as Qualcomm and Taiwan-based MediaTek.
In 2020, Apple began producing its own laptop processors, pushing out longtime Mac chip partner Intel. The processing speed boost and long battery life provided by the Apple chips rebooted its flagging Mac business and helped it gain share over Microsoft Windows-based PCs.
Communications chips that capture real-world signals and translate them into data and voice calls at superfast speeds are notoriously difficult to develop, and there are only a handful of companies in the world able to make them. They include Qualcomm, MediaTek and Samsung.
Qualcomm and Apple have had an uneasy relationship in the past decade, including an extended legal fight over Qualcomm’s supply of chips to Apple. Apple alleged that Qualcomm required it to pay excessive patent-royalty fees to purchase the essential chips.
The companies settled their differences in 2019, reaching a long-term patent-licensing deal and a supply agreement. The licensing deal, which lasts through April 2025 and is extendible for another two years, isn’t changed by the companies’ new supply agreement, Qualcomm said.
Following the 2019 deal with Apple, Qualcomm assumed that it would supply only 20% of the modems in Apple smartphones launching this year as Apple worked on its replacement.
In November of last year, however, Qualcomm chief financial officer Akash Palkhiwala said it expected the “vast majority” of the 2023 phones would contain its chips.
With the new deal, Qualcomm is making a similar assumption that sales to Apple will tail off. It is expecting it will supply only 20% of the modem chips for Apple’s phones in 2026.