Cupertino, California, United States

At a time when the iPhone manufacturer is facing more difficulties in China and is seeking to strengthen its supply chains abroad, tech giant Qualcomm announced on Monday that it has reached an agreement with Apple to provide 5G processors until at least 2026. 

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Despite switching all of its laptops to using chips of its own design, the transaction shows that Apple is not rushing to release its own modem and is prolonging a partnership worth billions of dollars to Qualcomm for at least three years beyond what was anticipated.

Early afternoon trading saw a 4 per cent increase in Qualcomm shares. Qualcomm is a pioneer in the design of modem chips, which link mobile devices to mobile data networks. Apple stock increased by 0.5 per cent.

Headquartered in San Diego, California, Qualcomm saw the conclusion of a protracted legal dispute with Apple, following which, the two firms subsequently agreed to a chip supply agreement in 2019.

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The iPhones that Apple is anticipated to introduce on Tuesday would be the last batch of phones to be launched under that supply agreement, which shall expire this year.

As per the agreement made on Monday, Qualcomm will provide Apple with semiconductors for new phones released year up until 2026. When asked about the deal’s worth, Qualcomm merely said that it was “similar” to a previous one.

UBS analysts predicted that Qualcomm would sell $7.26 billion worth of chips to Apple in 2022 in a research note published on August 3.

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A patent licencing agreement Qualcomm finalised with Apple in 2019 is still in effect, according to Qualcomm. The companies have the opportunity to extend the agreement for an additional two years until 2025.

Reuters quoted Susannah Streeter, the head of money and markets at Hargreaves Lansdown, as saying, “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 spent $1 billion to purchase Intel’s modem section in 2019, while the company is in the process of developing its own modem technology. It is unknown how rapidly Apple intends to increase the use of its own chips.

By 2026, barely a fifth of Apple’s iPhones would utilise Qualcomm’s chips, the company stated on Monday in a statement.

Although all of the iPhone 14 models announced last year had Qualcomm modems, Qualcomm made a similar prediction regarding its relationship with Apple in 2021 that turned out to be unduly conservative.

Moreover, Akash Palkhiwala, the chief financial officer of Qualcomm, revised his projections for the 2023 iPhones that will be made public this week last year, stating that he anticipated that the “vast majority” of them will come equipped with Qualcomm modems.

(With inputs from Reuters)

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