September 11 (Reuters) – Qualcomm Inc (QCOM.O) said on Monday it had signed an agreement with Apple Inc (AAPL.O) to supply 5G chips until at least 2026, as the iPhone maker faces increasing challenges in China and looks… To strengthen its supply chains elsewhere.
The deal extends a multi-billion-dollar relationship with Qualcomm by at least three years beyond what was expected, and indicates that Apple is in no rush to produce its own modem, despite moving all of its computers to process chips of its own design.
Qualcomm shares rose 4% in early afternoon trading. The company is a leading designer of modem chips that connect phones to mobile data networks. Apple shares rose 0.5%.
Qualcomm, based in San Diego, California, previously signed a chip supply deal with Apple in 2019, after the two companies settled a long legal battle.
That supply agreement expires this year, meaning the iPhones Apple is expected to announce on Tuesday will be the last phones to debut under the deal.
Under the agreement announced on Monday, Qualcomm said it would supply Apple with chips for phones it will release every year until 2026. Qualcomm did not disclose the value of the deal, saying only that the terms were “similar” to its previous agreement.
Apple did not immediately respond to a request for comment.
In a research note dated August 3, UBS analysts estimated that Qualcomm sold $7.26 billion worth of chips to Apple in 2022.
Qualcomm also said that the patent licensing agreement it signed with Apple in 2019 remains in effect. This deal expires in 2025, but the companies have the option to extend it for two years.
“As Apple faces increasing challenges in China, strengthening its supply chains elsewhere is a priority, and the company appears to be stepping back or at least delaying its plans to go it alone in more areas with its own chip production,” Susanna said. Streeter, Head of Finance and Markets at Hargreaves Lansdowne.
Apple is working on its own modem technology and spent $1 billion to buy Intel’s (INTC.O) modem unit in 2019. Apple has not said how quickly it plans to ramp up use of its own chips.
Qualcomm said Monday that its financial projections assume that just one-fifth of Apple’s iPhones will use its chips by 2026.
However, Qualcomm made similar forecasts for its business with Apple in 2021, which turned out to be very conservative, as last year’s iPhone 14 models were all released with Qualcomm modems.
Last year, Akash Palkhiwala, Qualcomm’s chief financial officer, updated his forecast for 2023 iPhones to be released this week, saying he expected the “vast majority” of them to include Qualcomm modems.
Stephen Nellis reports in San Francisco; (Additional reporting by Yuvraj Malik in Bengaluru – Prepared by Mohammed for the Arabic Bulletin) Editing by Miral Fahmy, David Holmes and Richard Chang
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