Qualcomm and Apple Extend 5G Chip Partnership Amid Supply Chain Shifts

Politics, News Sept. 11, 2023, 11:23 p.m.

Qualcomm and Apple extend their partnership until 2026, with Qualcomm supplying 5G chips. This decision hints at Apple delaying its own modem development and strengthening its supply chain outside China. Qualcomms stock rises 4%.

In a recent announcement, Qualcomm revealed a significant deal with tech giant Apple that has far-reaching implications for both companies. Under this agreement, Qualcomm will supply 5G chips to Apple until at least 2026, signaling a continued partnership that extends beyond earlier expectations.

This partnership holds particular significance as Apple faces mounting challenges in the Chinese market and seeks to strengthen its supply chain operations in other regions. The deal extends the lucrative relationship between Qualcomm and Apple, a relationship valued in the billions of dollars. This development also suggests that Apple is not rushing to develop its own modem technology, despite its shift toward using in-house designed processing chips for its computers.

Following this announcement, Qualcomm's stock saw a substantial 4% increase in early afternoon trading, reaffirming Qualcomm's position as the leading designer of modem chips that facilitate connectivity between phones and mobile data networks. Apple's shares also experienced a modest 0.5% rise.

Qualcomm and Apple had previously inked a chip supply agreement back in 2019, following the resolution of a prolonged legal battle between the two tech giants. The original supply agreement was set to expire this year, making the iPhones expected to be unveiled soon the last to feature Qualcomm chips under the existing deal.

Under the terms of the newly announced accord, Qualcomm will continue to supply Apple with chips for their phones, with this collaboration expected to endure until 2026. While the specific financial details of the deal were not disclosed, Qualcomm stated that the terms are "similar" to the previous agreement. Apple has yet to provide an official comment on the matter.

According to UBS analysts, Qualcomm had sold approximately $7.26 billion worth of chips to Apple in 2022. Additionally, the patent licensing agreement that Qualcomm and Apple entered into in 2019 will remain in effect until 2025, with an option for a two-year extension beyond that.

This partnership between Qualcomm and Apple takes on added significance as Apple faces growing challenges in the Chinese market. Strengthening its supply chain beyond China is now a top priority for Apple. Moreover, the delay or scaling back of Apple's plans to develop its own chip production is evident in this agreement.

While Apple has been working on its modem technology and invested $1 billion to acquire Intel's modem unit in 2019, the timeline for the widespread adoption of Apple's own chips remains undisclosed.

Qualcomm's financial projections now assume that only a fifth of Apple's iPhones will incorporate its chips by 2026. However, it's worth noting that a similar projection made in 2021 proved to be overly conservative, as all iPhone 14 models released last year featured Qualcomm modems. Qualcomm's Chief Financial Officer, Akash Palkhiwala, has also updated predictions for the upcoming 2023 iPhones, expressing expectations that the "vast majority" of them will include Qualcomm modems.

This latest development underscores the enduring partnership between Qualcomm and Apple, emphasizing the crucial role Qualcomm plays in Apple's iPhone technology stack. As both companies navigate the evolving tech landscape, this deal secures a reliable supply chain and underscores the significance of their ongoing collaboration.