The iPhone maker is facing greater hurdles in China and is looking to strengthen its supply chains elsewhere, so Qualcomm (QCOM.O) announced on Monday that it has secured an agreement with Apple (AAPL.O) to supply 5G chips until at least 2026. Although Apple has switched all of its laptops to processor chips of its own design, this arrangement ensures that Qualcomm will continue to get billions of dollars in revenue for at least the next three years. The company’s stock rose by 4 percent in early afternoon trading. The firm’s modem chips are widely used in smartphones as the industry standard. The stock price of Apple Inc. increased by 0.5%.
The San Diego, CA-based In 2019, Qualcomm and Apple ended their protracted court dispute and struck a chip supply agreement that had been in the works since 2019. Since Apple’s supply agreement expires this year, the new iPhones it is slated to unveil on Tuesday will be the last ones to be released as part of that arrangement. Qualcomm said Monday that it will provide Apple with semiconductors for iPhones every year until 2026. Qualcomm has not revealed the parameters of the contract beyond saying they are “similar” to its previous agreement and noting that it is “similar” in value. We reached out to Apple for comment, but did not hear back right away.
As reported in a research note published by UBS on August 3rd, the firm anticipates that Qualcomm will earn $7.26 billion from Apple chip sales in 2022. It was also confirmed that Qualcomm’s 2019 patent licensing agreement with Apple is still in effect. The original agreement was set to finish in 2025, but the parties included a two-year extension option. The head of money and markets at Hargreaves Lansdown, Susannah Streeter, noted that “at a time when Apple is running into increasing challenges in China, reinforcing its supply chains elsewhere is a priority,” and that the company may be abandoning or postponing plans to go it alone in more areas with its own chip production.
In 2019, Apple invested $1 billion to acquire Intel’s (INTC.O) modem section while it works on its own modem technology. Exactly how swiftly Apple aims to increase the use of its own CPUs is unknown. On Monday, Qualcomm announced that by 2026, only 20% of iPhones are expected to utilize its CPUs. When Qualcomm predicted 2021 revenue from Apple, it was also unduly conservative due to the fact that all 14 iPhone models produced in 2018 use Qualcomm modems. In addition, Qualcomm’s chief financial officer, Akash Palkhiwala, has predicted that the “vast majority” of the 2023 iPhones that will be announced this week would include Qualcomm processors.