Apple has announced that it is extending its agreement with Qualcomm to source modem semiconductors for an additional three years. This news indicates that Apple’s efforts to design their own chips in-house are taking longer to materialize than anticipated. Qualcomm’s shares surged following the announcement, highlighting the importance of their relationship with Apple as their largest customer. This article will explore the implications of this deal for both companies and the challenges Apple faces in developing their own modem technology.
The newly extended agreement between Apple and Qualcomm will cover smartphone launches in 2024, 2025, and 2026. This deal ensures that Qualcomm will continue to be a key supplier within Apple’s supply chain. The current iPhone, set to be released on Tuesday, was expected to be one of the last iPhones to rely on Qualcomm’s modem chip. This agreement solidifies Qualcomm’s position and validates their claim to having the best smartphone modem, a critical component for connecting devices to the internet and making calls.
The extension of the Qualcomm agreement suggests that Apple’s efforts to build their own modem components have faced challenges and delays. The company embarked on this ambitious project in 2018 and later acquired Intel Corp.’s smartphone chip business in 2019 to bolster their efforts. Apple’s chip chief, Johny Srouji, expressed confidence in the project’s progress in 2020. However, the development of a reliable and high-performance modem has proven to be more difficult than anticipated.
Apple’s goal is to create a modem chip that can seamlessly connect to global cellular networks while matching or exceeding the performance of Qualcomm’s chips. The company has encountered difficulties, particularly in battery life optimization. Additionally, there are bureaucratic challenges, such as obtaining certification for the modem from relevant authorities. Designing a modem that can support various cellular networks and meet the global standards is a complex task.
Although Apple has faced challenges in developing their modem technology, their in-house chip initiative, known as Apple Silicon, has experienced successes in other areas. Over the past three years, Apple replaced Intel processors in Macs without major issues, resulting in improved battery life and performance gains. This success has been a selling point for their Mac products. Apple is also working on replacing other semiconductors within the iPhone, including a key Broadcom part, further strengthening their control over their supply chain.
As Apple’s largest customer, accounting for nearly a quarter of Qualcomm’s revenue, the ongoing partnership with Qualcomm is crucial for both companies. Apple relies on Qualcomm’s modem chips to power its devices, and Qualcomm benefits from the validation of having Apple as a customer. The new agreement not only extends their partnership but also signals Qualcomm’s sustained leadership in 5G technologies, a critical factor in the modern smartphone market.
Despite the extension of the Qualcomm deal, Apple is still committed to developing their own modem technology. It is possible that Apple may begin using their in-house modem before the extended agreement with Qualcomm expires in 2026. The company has been planning a gradual rollout of their own modem component. Qualcomm’s projection of a 20% share in the business when the 2026 iPhone launches indicates that Apple aims to reduce their dependence on Qualcomm over time, aligning with their long-term strategy of vertical integration.
Apple’s decision to extend its agreement with Qualcomm for modem semiconductors highlights the challenges the company faces in developing their own modem technology. While delays in their in-house chip effort indicate the complexity of designing a reliable and high-performance modem, Apple’s successes in other areas, such as Apple Silicon, demonstrate their ability to innovatively advance their chip capabilities. The Qualcomm deal remains essential for Apple, ensuring a continued supply of top-quality modem chips for their devices while they work towards achieving greater independence in the future.