Shares of Qualcomm rose approximately 7% in premarket trading on Monday following the announcement that the company will continue to supply modem chips for Apple iPhones until 2026. This move clears any financial obstacles for Qualcomm while also indicating that Apple’s efforts to develop its own chips are progressing more slowly than anticipated.
Qualcomm unveiled a new deal with Apple on Monday, stating that iPhones will be equipped with SnapDragon 5G modem-RF systems in 2024, 2025, and 2026. Although Apple has been working on its own systems since acquiring Intel Corp.’s smartphone-modem business in 2019, the target date for implementing its own connectivity chipsets has faced delays.
Notably, Qualcomm revealed that it expects to have only a 20% share of modems in the 2026 iPhone models, implying that Apple will likely start incorporating its own modems by then. However, during the signing of a similar three-year deal in 2021, both companies projected a 20% share in the final year. Since the end of last year, Qualcomm has publicly affirmed that it currently supplies the “vast majority” of modems for the upcoming 2023 iPhones.
The terms of the new deal between Qualcomm and Apple are described as “similar” to the previous three-year agreement. Unfortunately, Apple has not yet provided confirmation or comments regarding this announcement, as the company is expected to unveil its new lineup of iPhones at an event scheduled for Tuesday.
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Earlier this year, Qualcomm Chief Executive Cristiano Amon revealed in an interview with CNBC that the company had no plans to provide mobile chipsets to Apple in 2024. When asked about any updates to this assumption during an August earnings call, Amon stated that there were no changes to their prior plans for 2024.
This news caused concerns among analysts who predicted a significant loss in revenue for Qualcomm starting next year. Oppenheimer analysts wrote that Qualcomm management had reaffirmed the expected loss of modem socket with the launch of the iPhone 16, which would result in an estimated revenue loss of $10 billion for the company.
As a result, Qualcomm shares have struggled, declining by 19.6% in the past year, while the S&P 500 index gained 9.6%.
The legal battle between Qualcomm and Apple, which began in 2017, added further uncertainty to their relationship. Apple filed a lawsuit, claiming that Qualcomm’s licensing fees were excessive, and Qualcomm countersued. However, both parties reached a settlement in 2019 when Intel’s attempts to produce reliable chips for Apple’s transition to 5G technology fell short. On the same day as the settlement announcement, Intel closed its modem business and later sold it to Apple.
According to a report from Bloomberg News, Apple is now aiming to develop its own 5G chipsets, with expectations of having them ready by 2024 or early 2025.