Apple Extends Qualcomm Partnership, Signaling Delay in In-House Chip Design

Apple has announced that it will be extending its agreement with Qualcomm to source modem semiconductors for another three years. The agreement, which covers smartphone launches from 2024 to 2026, indicates that Apple’s plans to design its own chips internally have faced unexpected challenges. This announcement has caused Qualcomm’s shares to surge, solidifying their position as a leading smartphone modem provider.

Qualcomm has been Apple’s largest customer and the main supplier of modem chips for the iPhone. The extension of their agreement ensures that Qualcomm will continue to play a significant role in Apple’s supply chain. The relationship between the two companies also validates Qualcomm’s claim to having the best smartphone modem. The Qualcomm modem chip has supported 5G networks since the iPhone 12 generation, enabling faster internet connectivity and call capabilities on Apple devices.

Apple’s decision to design its own modem component has proven to be more challenging than initially anticipated. The project began in 2018, and the acquisition of Intel Corp.’s smartphone chip business in 2019 further bolstered Apple’s efforts. However, the development of the modem has encountered obstacles, such as battery life issues and the complexities of certification with authorities. Despite previous speculations that the in-house modem would be ready by 2023, it is now expected to be shipped by the end of 2024 or early 2025.

While Apple has faced difficulties with its modem chip, its broader push into in-house chip design, known as Apple Silicon, has seen success. Over the past three years, Apple has replaced Intel processors in its Macs, resulting in significant gains in battery life and performance. The company has also been working towards eliminating other semiconductors within the iPhone, including a key Broadcom part. Apple has strategically expanded its teams in Southern California, seeking to attract top chip talent from Qualcomm and Broadcom.

The extension of the Qualcomm partnership comes just before Apple’s highly anticipated product announcement event. During this event, Apple is set to unveil the iPhone 15, updated Apple Watch models, and AirPods. With sales declining for three consecutive quarters, Apple is relying on these new products to reverse the trend. The iPhone remains Apple’s primary revenue generator, accounting for approximately half of its revenue.

Apple and Qualcomm have had a turbulent relationship in the past, largely due to disagreements over licensing fees for wireless phone network patents. Apple challenged Qualcomm’s business model but eventually lost the legal battle and agreed to license Qualcomm’s technology, as many other major phone makers have done. This licensing arrangement will run until 2025, with the option to extend it for two more years.

Qualcomm is the largest maker of smartphone chips globally and has been a leader in the modem chip market. Although the new agreement with Apple extends until 2026, Qualcomm projects that it will only maintain a 20% market share when the 2026 iPhone is launched. This forecast resembles the conservative wording used in the original agreement, suggesting that Apple may still introduce its own modem before then.

Apple’s decision to extend its agreement with Qualcomm to source modem semiconductors highlights the challenges it has faced in designing its own chips internally. While Apple has had success with its Apple Silicon initiative, the development of an in-house modem chip has proven more complex. Nonetheless, Apple remains committed to reducing its reliance on external suppliers, and its ongoing partnership with Qualcomm ensures a stable supply chain for its iPhones. The future will reveal whether Apple can overcome these obstacles and ultimately introduce its own modem chip to the market.

Technology

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