Qualcomm will supply Apple with 5G chips through 2026 under a new agreement, Qualcomm announced in a statement on Monday.
The deal extends a multibillion-dollar partnership between Apple and Qualcomm by at least three years beyond what was originally expected. The deal demonstrates Apple's cautious approach to building its own modem, despite the fact that it is moving all of its computing systems to its own proprietary processing chips.
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Qualcomm shares rose 4% in early afternoon trading. The company is a leading designer of modem chips that connect phones to mobile data networks . Apple shares rose 0.5%
San Diego, California-based Qualcomm previously signed a chip supply deal with Apple in 2019, following the resolution of a long-running legal dispute between the two companies.
That supply agreement expires this year, meaning the iPhone Apple is expected to announce on Tuesday will be the last new phone under that agreement.
Under the deal announced on Monday, Qualcomm said it would supply 5G chips for Apple phones through 2026. Although Qualcomm did not disclose the exact value of the deal, it said the terms are similar to their previous agreement.
In a report published on August 3, UBS analysts estimated that Qualcomm sold $7.26 billion worth of chips to Apple in 2022.
Qualcomm also announced that the patent licensing agreement it signed with Apple in 2019 is still in effect. That agreement is set to expire in 2025, but the companies have the option to extend it for two years.
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At a time when Apple faces growing challenges in China, strengthening supply chains elsewhere is a priority. The company appears to be backing off or at least delaying its plans to produce more of its own chips in more areas, said Susannah Streeter, head of finance and purchasing at Hargreaves Lansdown.
Apple is pursuing its own technology and spent $1 billion to acquire Intel (INTC.O) modem unit in 2019. Apple has not said how quickly it intends to expand the use of its own chips.
On Monday, Qualcomm announced that, based on its financial projections in this case, only 20% of Apple's iPhones will use its chips by 2026.
However, Qualcomm presented a similar view of its partnership with Apple in 2021, which turned out to be overly conservative. The iPhone 14 models released last year used Qualcomm modems exclusively.
Last year, Qualcomm Chief Financial Officer Akash Palkhiwala announced his predictions for the 2023 iPhones that are expected to be released this week. He noted that the "vast majority" of them are expected to be equipped with Qualcomm modems.
Source: reuters.com
