Under a new agreement, Qualcomm will provide Apple with 5G chips until 2026
Qualcomm (QCOM.O) announced on Monday that it had signed a contract with Apple (AAPL.O) to provide the iPhone maker with 5G chips until at least 2026. This comes at a time when Apple is facing increased difficulties in China and is looking to strengthen its supply chains elsewhere.
Apple is not rushing to release its own modem, despite switching all of its computers to processing chips of its own design, as evidenced by the agreement, which extends a relationship with Qualcomm that is worth billions of dollars for at least three years beyond what was anticipated.
Qualcomm shares were up 4% in early evening exchange. The organization is the main fashioner of modem chips that associate telephones to portable information organizations. Apple’s stock gained 0.5%.
San Diego, California-based Qualcomm recently marked a chip supply manage Apple in 2019, after the two organizations settled an extended fight in court.
That supply arrangement closes this year, implying that the iPhones that Apple is supposed to report on Tuesday would be the last telephone debut under that arrangement.
Under the agreement reported Monday, Qualcomm said it will supply Apple with chips for telephones that will come out every year until 2026. The only thing Qualcomm said about the deal was that the terms are “similar” to its previous agreement. It didn’t say how much it would cost.
Apple didn’t quickly answer a solicitation for input.
UBS analysts estimated in a research note on Aug. 3 that Qualcomm would sell chips to Apple for $7.26 billion in 2022.
Qualcomm likewise said a patent permitting bargain it endorsed with Apple in 2019 remaining parts set up. The companies have the option to extend that 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.
In 2019, Apple spent $1 billion to acquire Intel’s (INTC.O) modem unit, which it is developing on its own. Apple has not said how rapidly it intends to increase the utilization of its own chips.
On Monday, Qualcomm stated that its financial projections will be based on the assumption that only a fifth of Apple’s iPhones will utilize its chips by 2026.
However, the iPhone 14 models that were released last year all utilized Qualcomm modems, so a similar projection that Qualcomm made regarding its business with Apple in 2021 proved to be excessively conservative.
In addition, in the previous year, Chief Financial Officer Akash Palkhiwala of Qualcomm updated his predictions for the 2023 iPhones that will be released this week, stating that he anticipated that the “vast majority” of them would include modems from Qualcomm.