What’s This New Qualcomm-Apple Deal About?

The race for chips is on!

We’re not talking about wafers or fries though! #TimeForASnack

We’re talking about the snack-size electronic items that go into devices such as your smartphones, enabling you to access online menus and order tasty food! #DoYouByte

Moving ahead of the food puns, companies are looking to secure expert partners to ensure their supply chains aren’t affected by geopolitical tensions.

Keeping to this, industry giants Qualcomm and Apple have made an announcement regarding a deal between the two.

What's the deal about? Let’s explore:
 

What Was The Announcement?

 

• Qualcomm announced on Monday (September 11) that it signed a deal with Apple to supply 5G chips until 2026.

• This deal, believed to be worth billions of dollars, builds on a previous one that the two had in place.

• Given the geopolitical tensions between countries regarding chips and chip materials (read more), Apple is on the lookout to secure its supply chains.

• Shares of both companies rose post the announcement, with Qualcomm seeing an increase of 4% by the afternoon, while Apple saw a 0.5% rise.

   

What Happened In The Past?

 

• Would you believe the two were engaged in a legal battle before they signed a deal in 2019. #SayWhat

• The previous deal ends this year, making it possible that the new range of phones scheduled to be released on Tuesday (September 12) could be the last phone to launch using Qualcomm chips under the deal.

• Reportedly, UBS estimates show that 21% of Qualcomm’s revenue in 2022 came from Apple, reaching an approximate of $9.2 billion.

• While $7.26 billion were made in chip sales, Qualcomm also earned through cellular licensing fees, which amounted to $1.9 billion in 2022.

• While the six-year patent licensing agreement (also signed in 2019) expires in 2025, the companies have an option to extend it by two years.

• The legal battle that ensued in 2019 was related to royalties and patent disputes, which culminated in a settlement with all legal action worldwide between the two companies being dropped and business commencing as per usual.

 

What Was Said About The Deal?

 

• So, we know that Qualcomm said it will supply Apple with chips for its phones until 2026. However, what’s the deal worth? Qualcomm did not disclose that but did mention that the deal’s terms are “similar” to the previous one.

• Apple did not provide a comment at the time of writing.

• Qualcomm believes only 20% of Apple’s iPhones will use its chips through the duration of the current agreement. A previous prediction by the company came across “overly conservative”, as all iPhone 14 models released in 2022 contained Qualcomm chips.

• This even saw Qualcomm’s CFO, Akash Palkhiwala, revise his predictions for 2023 to mention that a “vast majority” of new iPhones (releasing September 12) will use Qualcomm modems.

• Speaking on the deal, Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown, said, "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."

 
What’s interesting about the deal is the fact that Apple has made a push to manufacture its own modems, even purchasing Intel’s smartphone modem business for $1 billion in 2019. Although, the company hasn’t mentioned any plans of when it plans to use its own chips.

Do you think Apple will begin using its own chips soon or will it stick with the leading designer of modem chips, Qualcomm, for its products?

Let us know in the comments below!