Renewed Apple-Qualcomm deal pushes in-house modem chips further down the line
- The renewed pact between Apple and Qualcomm indicates that an in-house modem chip design could be taking longer than expected.
- The deal validates Qualcomm’s claim to have the best smartphone modem.
- Broadcom looks set to be the next supplier to lose its main income stream with Apple.
When Apple kicked long-time partner Intel to the curb in favor of designing its own chips, the signal was clear: the tech giant will continue replacing suppliers’ technologies with its own. While the company’s in-house chip push — Apple Silicon — has succeeded in its Macs, the same can’t be said about its iPhones — yet. The iPhone maker has just renewed its agreement with Qualcomm, its long-time modem chip supplier.
The deal extends the relationship for at least three years beyond what was initially expected, suggesting that Apple is experiencing further delays in developing its own in-house 5G modem chips. While the iPhone maker would continue working on its 5G chips, the development would certainly not be complete in time for this week’s launch of the 2023 iPhones.
In fact, the deal shows that Apple’s long-running effort to develop its modems isn’t making its way into the company’s flagship phones any time soon, despite successfully moving all its computers to its in-house processing chips. In a statement released on September 11, Qualcomm announced that it had agreed with Apple to supply its 5G modem chips for iPhone launches in 2024, 2025, and 2026.
The companies’ agreement had been set to end this year, and the latest iPhone — due on September 12— was expected to be one of the last to rely on the Qualcomm modem chip. Now, it seems as though Qualcomm will maintain its lucrative position within Apple’s supply chain. Moreover, according to data compiled by Bloomberg, Apple is Qualcomm’s largest customer — accounting for nearly a quarter of its revenue.
The relationship between both companies helps validate Qualcomm’s claim of having the best smartphone modem. The chip has supported speedier 5G networks ever since the iPhone 12. Even the chipmaker iterated that the “agreement reinforces Qualcomm’s track record of sustained leadership across 5G technologies and products.”
Is Apple struggling to replace Qualcomm with its in-house modem chips?
For the iPhone maker, controlling its technologies helps it integrate its products more deeply. It is also important in terms of its hardware schedule — chips take three years to develop, Apple senior vice president Johny Srouji said last year — giving the company more control over costs. CEO Tim Cook has frequently noted that the company has a “long-term strategy of owning and controlling the primary technologies” behind its products.
When the tech giant broke its 15-year partnership with Intel’s chips on its Macs in 2020, it signified a new direction, ramping up in-house capabilities. According to people familiar with the case, Apple aims to ready its first cellular modem chips by the end of 2024 or early 2025. Apple will then use its modem chips in a single device before expanding the rollout to other devices.
The transition away from Qualcomm could take up to three years – making sense of the renewed agreement that lasts till 2026. Initially, Qualcomm had predicted that it would only provide around 20% of the 5G modem parts for the new iPhones in 2023. Still, hiccups with Apple’s in-house modem resulted in Qualcomm retaining its foothold.
But Qualcomm did share its forecast that it will only receive minimal revenue contributions from Apple in fiscal 2025 – which could be true, according to Bloomberg’s report. To contextualize the significance of Apple to Qualcomm’s business, 22% of the former’s annual sales stems from the iPhone maker. That amount represents nearly US$10 billion, though the company has warned for years that its reliance on Apple will wane.
As part of the shift to replace the chips in its devices with homegrown components, there are talks that Apple will also drop an essential Broadcom Inc. part by 2025. The move, should it be true, would be a blow to Broadcom, one of Apple’s biggest suppliers. The chipmaker makes a combined component that handles Wi-Fi and Bluetooth functions on Apple devices.
Apple is also Broadcom’s largest customer, accounting for roughly 20% of the chipmaker’s revenue in the last fiscal year, almost a staggering US$7 billion. The phone also has helped fuel growth at Broadcom, which refers to Apple as its “large North American customer” during earnings calls. Therefore, as per a Bloomberg report in January, “the moves will further upend a chip industry that makes billions of dollars supplying Apple components.”
The upside is that Broadcom supplies Apple with other components — including radio-frequency chips and components that handle wireless charging. Even so, the iPhone maker is said to have been working on customizing those parts too. Interestingly, to make up for what Qualcomm and Broadcom provide, Apple is already working on an in-house design that will combine cellular modem, Wi-Fi, and Bluetooth capabilities into a single component.
Apple and Qualcomm – staying together until the time is right.
26 February 2024
26 February 2024
22 February 2024