At a time when the iPhone manufacturer is facing more difficulties in China and is seeking to strengthen its supply chains abroad, Qualcomm (QCOM.O) announced on Monday that it has reached an agreement with Apple (AAPL.O) to provide 5G processors until at least 2026.
The agreement shows Apple is not rushing to release its own modem despite switching all of its laptops to using chips of its own design, and it extends a partnership worth billions of dollars to Qualcomm for at least three years longer than what was anticipated.
Early afternoon trading saw a 4% increase in Qualcomm shares. The business is a pioneer in designing modem chips, which link mobile devices to mobile data networks. Apple stock increased 0.5%.
Headquartered in San Diego, California, 2019 saw the conclusion of a protracted legal dispute between Qualcomm and Apple, and the two firms subsequently agreed to a chip supply agreement.
The iPhones that Apple is anticipated to introduce on Tuesday would be the final phones to launch under that supply agreement, which expires this year.
According to the agreement made public on Monday, Qualcomm will provide Apple with semiconductors for new phones released year up until 2026. When asked about the deal’s worth, Qualcomm said 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.
A patent licensing agreement Qualcomm inked with Apple in 2019 is still in effect, according to Qualcomm. The companies can extend the agreement for an additional two years until 2025.
“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,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
Apple spent $1 billion to purchase Intel’s (INTC.O) modem section in 2019, and the company is developing its own modem technology. How swiftly Apple intends to increase the use of its own chips is still being determined.
By 2026, barely a fifth of Apple’s iPhones would utilize Qualcomm’s chips, the company stated on Monday in a statement.
Although all 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.
