In a surprising turn of events, Apple has extended its agreement with Qualcomm for an additional three years, highlighting the challenges Apple faces in its attempt to design modem semiconductors in-house. The new deal will cover smartphone launches from 2024 to 2026, securing Qualcomm’s position in Apple’s supply chain. While the financial terms of the agreement remain undisclosed, Qualcomm expects the new deal to be similar to the previous one signed in 2019. This extension suggests that Apple’s efforts to build its own modem have encountered significant obstacles and delays.
Qualcomm’s dominance in the smartphone modem sector is further solidified by this agreement with Apple. As Apple’s largest customer, accounting for nearly a quarter of Qualcomm’s revenue, the partnership validates Qualcomm’s claim of having the best smartphone modem. The latest iPhone models, starting with the iPhone 12, have relied on Qualcomm’s modem chip to support faster 5G networks. Qualcomm’s shares saw a significant surge of over 8 percent following this announcement, indicating investor confidence in the continued partnership.
The decision to extend the agreement reflects the challenges Apple has faced in its pursuit of developing an in-house modem component. Initially launched in 2018, Apple’s modem project was bolstered by the acquisition of Intel Corp.’s smartphone chip business in 2019. However, the development has proven to be more complex and time-consuming than anticipated. While some analysts expected the modem to be ready for the 2023 iPhone, Qualcomm dispelled these speculations last year. Apple now aims to launch the modem by the end of 2024 or early 2025, allowing for a longer runway before its introduction.
Apple’s modem development has encountered numerous challenges. The company must create a chip capable of seamlessly connecting to various global cellular networks while providing equal or superior performance to Qualcomm’s offerings. Battery life has been a particular concern, and bureaucratic hurdles, such as modem certification, have also posed difficulties. Notwithstanding these obstacles, Apple’s success in replacing Intel processors in its Macs and the subsequent battery life and performance improvements have been lauded.
Apple’s push towards developing its own semiconductors extends beyond modems. The company seeks to replace other key components within the iPhone, including a crucial part supplied by Broadcom. To bolster its efforts, Apple has expanded its workforce in Southern California, where both Qualcomm and Broadcom have a presence, in an attempt to attract top talent. Teams are actively working on wireless chip development in Cupertino, San Diego, and Germany. These endeavors align with Apple’s broader strategy of reducing reliance on external suppliers and gaining more control over its supply chain.
The extension of the agreement with Qualcomm precedes Apple’s highly anticipated annual product announcement. On the following day, Apple is set to unveil the iPhone 15, along with refreshed Apple Watch models and AirPods. These new products are crucial to reversing Apple’s recent sales decline that has persisted for three quarters. As the primary revenue generator, the iPhone is central to Apple’s overall success, accounting for approximately half of its total revenue. This agreement with Qualcomm ensures a stable supply chain for new iPhone models and underscores Apple’s commitment to delivering state-of-the-art technology.
Apple and Qualcomm have experienced a tumultuous relationship over the years. Apple previously challenged Qualcomm’s licensing fees for patents related to wireless network operation in a legal battle. Ultimately, Apple conceded, like other major phone manufacturers, and agreed to license Qualcomm’s technology. This arrangement is set to run until 2025, with the possibility of a two-year extension. The complex nature of designing technology that seamlessly connects with different equipment and standards used by wireless carriers worldwide has heightened the demands for a versatile modem chip. Qualcomm has consistently led the field in this regard.
Although the new agreement extends until 2026, Apple remains committed to eventually utilizing its own modem chip. The company plans to roll out the component gradually, ensuring a smooth transition. Qualcomm expects to have a 20 percent share of the business by the time the 2026 iPhone launches, indicating that Apple’s move towards independence may continue beyond the scope of this agreement. Interestingly, Qualcomm’s wording regarding its market share projection mirrors that of the original agreement, hinting at a conservative forecast.
Apple’s decision to extend its agreement with Qualcomm for modem semiconductors highlights the challenges the company faces in developing an in-house modem component. Despite concerted efforts and significant investments, Apple’s modem development has encountered obstacles, including battery life concerns and bureaucratic challenges. Qualcomm’s continued dominance in the smartphone modem market, along with its claim to have the best smartphone modem, reaffirms the significance of this partnership. As Apple prepares for its highly anticipated product announcement, the extension of this agreement ensures a stable supply chain for the upcoming iPhone models. While Apple remains committed to eventually utilizing its own modem, the timeline for its implementation remains uncertain.
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