On Monday, smartphone chip manufacturer Qualcomm announced that it will continue to supply Apple with 5G modems for the iPhone until 2026. The current deal, which was struck in 2019 and is set to expire this year, has been extended for a further three years.
Market analysts were expecting Apple to power the iPhone with 5G modems developed in-house from 2024 after the company had reached a $1 billion agreement with Intel to purchase a majority stake in its smartphone chip division in 2019.
As part of the efforts, Apple even completed the transition of its entire Mac and Macbook lineup from Intel-powered chips to Apple silicon in 2022.
Apple Push’s Back Plans To Develop Own Chips For Upcoming iPhones
But now, the company has pushed back plans to build 5G modems for its smartphones and has instead decided to continue its supply chain partnership with Qualcomm.
According to the agreement, the San Diego-headquartered chip giant will supply Snapdragon 5G Modem-RF Systems for the next three generations of iPhones.
Earlier this year, analysts speculated that Apple was preparing to move on from Qualcomm because of the complexity involved with their Snapdragon chips.
In response to Cupertino’s decision, Qualcomm CEO Cristiano Amon stated in March that the company had no plans to provide Apple with a modem in 2024 after its current deal expires. However, the company has now reversed its decision.
In a presentation to investors on September 11, Qualcomm said the renewed terms of the agreement with Apple were similar to the previous one, and most notably, the patent license agreement signed by both companies in 2019 will also remain unchanged.
According to the UBS estimate, Qualcomm was paid out $1.9 billion in fees last year by Cupertino for using its cellular license and continues to collect royalties under the existing six-year partnership.
Qualcomm expects to only supply 20% of the chipsets that will be needed by Apple for its 2026 iPhone as the tech giant continues to phase away from relying on external suppliers for smartphone modems. Tech experts predict Apple to showcase its in-house modem with the iPhone 18 (if at all the device will be called so).
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Apple And Qualcomm Fought In Court Regarding Sharing Licensing Fees
Both companies entered into an agreement in 2019 after a prolonged legal battle involving royalties. Apple had for years been purchasing chips from Qualcomm to power its iPhones but declined to pay any royalty for using the modems.
According to the terms and conditions of the chip manufacturer, any company that uses its chips would also be required to pay licensing fees for its patents.
At the time, Apple argued that Qualcomm was abusing its position as one of the only suppliers of cellular modems, and the chip supplier countered by saying that Apple was withholding royalty payments that the two companies had previously agreed as part of their deal.
The companies reached a court-mediated settlement where they agreed to a six-year partnership with the option to extend for two more years. It also included a one-time payment from Apple to Qualcomm in license fees, which amounted to almost $2 billion.
Under the current agreement, Apple’s upcoming iPhone 15 was supposed to be the final model to be powered by Qualcomm’s Snapdragon chipsets.
2023 Is Apple’s Worst-Performing Year Since The Early 2000s
The move from Apple comes at a time when the company is facing a difficult year selling its marquee product. Cupertino’s revenue from iPhone sales continued to fall for a third consecutive quarter. The company made $39.7 billion from the iPhone in the last quarter, indicating a 2% year-on-year sales decline.
Things were not helped by Beijing’s decision to bar government officials from using iPhones at workplaces or for work-related purposes. The decision was seen as a national security measure as the trade war between China and the U.S. was starting to heat up.
Unfortunately, Apple was caught up in the middle of the battle, leading to the company’s shares dipping 6% in the last week, losing $200 billion from its market value in the process. Both China and the U.S. are the first and second-largest global markets for the Silicon Valley giant.
But the market sees the latest development as a boost for Apple after the company experienced a modest 0.5% increase in its share value on Monday. Meanwhile, Qualcomm’s shares surged by 4% after the announcement was made.
Apple is expected to unveil the highly-anticipated iPhone 15 lineup on September 12, 10 a.m. ET. This year’s models are expected to bring radical new changes to the iPhone which has never been seen before.
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