Apple extends its contract with Qualcomm to cover iPhone launches until 2026, indicating that its own modem chip is not yet ready

Apple has extended a contract with Qualcomm for three more years, indicating that its ambitious quest to build the processors in-house is taking longer than planned. Qualcomm's stock jumped on the announcement.

The new agreement will cover "smartphone launches in 2024, 2025, and 2026," Qualcomm said in a statement Monday. The firms' deal was supposed to expire this year, and the current iPhone, which will be released on Tuesday, was likely to be one of the last to use the Qualcomm modem chip.

Instead, Qualcomm will keep its profitable position in Apple's supply chain. According to Bloomberg data, Apple is Qualcomm's top customer, accounting for about a quarter of sales. And their friendship lends credence to Qualcomm's claim to have the greatest smartphone modem, a vital component that allows smartphones to connect to the internet and make phone calls. The processor has supported faster 5G networks with the iPhone 12 generation.

"This agreement reinforces Qualcomm's track record of sustained leadership across 5G technologies and products," the chipmaker from San Diego stated. The financial parameters of the new agreement were not disclosed, although Qualcomm stated that it was identical to the last agreement inked in 2019.

Qualcomm stock rose more than 8% in premarket trading in New York on Monday. Apple was up by less than 1%.

For Apple, the move signals that developing a modem component has proved more difficult than anticipated. The project has been in the works for some years. The Cupertino, California-based corporation began the initiative in 2018 and expanded it in 2019 with the acquisition of Intel Corp.'s smartphone chip unit.

Apple hailed the creation of its own modem by 2020 as a "key strategy transition." Its chip leader, Johny Srouji, stated at the time that development was proceeding at full pace.

Some analysts predicted that the component would be ready for the 2023 iPhone, but Qualcomm shot that down last year. According to Bloomberg News, Apple was still planning to release the modem by the end of 2024 or early 2025. The project now has more time to complete before it is due.

It's been a challenging task: Apple need a processor that can connect to numerous cellular networks throughout the world without fail, while providing comparable or superior performance than Qualcomm. It's had issues with battery life, and there are logistical issues, such as registering the modem with authorities.

Apple Silicon, the company's in-house semiconductor initiative, has had better success elsewhere. Apple has successfully replaced Intel CPUs in its Macs over the last three years, and the improved battery life and performance of those computers has been a selling point.

In addition, the business has been attempting to replace other chips in the iPhone, including a critical Broadcom component. Broadcom, like Qualcomm, considers Apple to be its most important customer. Apple has staffed up in Southern California, where Qualcomm and Broadcom also have headquarters, as part of the campaign to acquire semiconductor talent. The corporation has teams working on the new wireless processors in Cupertino, San Diego, and Germany.

The new deal comes only one day before Apple's most important announcement of the year. At a presentation on Tuesday, Apple will announce the iPhone 15, as well as upgraded Apple Watch models and AirPods. It is banking on the items to help it reverse a three-quarter revenue decline. The iPhone is Apple's most profitable product, accounting for about half of its income.

Qualcomm, the world's largest manufacturer of smartphone processors, has had a rocky relationship with Apple in the past.

Apple sued Qualcomm over a core aspect of its business model: collecting licensing fees for patents that regulate the foundations of how cellular phone networks work. Apple finally conceded and agreed to license Qualcomm's technology, as did other major phone manufacturers. That partnership will last until 2025, with the possibility to extend it for another two years.

It is difficult to build technology that functions seamlessly since wireless carriers throughout the world employ a diverse set of equipment and standards. A modem chip must be able to connect to both older 3G and 4G networks as well as more advanced 5G systems swiftly. Qualcomm has been at the forefront of data-centric phones since their inception.

Despite the fact that the new deal runs until 2026, Apple may begin using its own modem before then. The corporation intends to progressively roll out the component.

In reality, Qualcomm only expects to have a 20% market share when the 2026 iPhone comes. Nonetheless, the corporation used comparable language to the original agreement, implying that it was a cautious forecasting.

Tags: #apple #qualcomm #iphone #modemchip