Qualcomm and Apple agree to extend 5G chip deal until 2026

Qualcomm on Monday said it had signed a deal with Apple to supply 5G chips until at least 2026, at a time when the iPhone maker faces increased challenges in China and looks to reinforce its supply chains elsewhere.

Qualcomm shares were up 3.2% at $109.55 after markets opened. The company is the leading designer of what are known as modem chips that connect phones to mobile data networks. Apple shares were flat.

San Diego, California-based Qualcomm previously signed a chip supply deal with Apple in 2019, after the two companies settled a protracted legal battle.

That supply agreement ends this year, meaning that the iPhones that Apple is expected to announce Tuesday would be the last phone debut under that deal.

Under the accord announced on Monday, Qualcomm said it will supply Apple with chips for phones that will come out each year until 2026. Qualcomm did not disclose the value of the deal, saying only that the terms are “similar” to its previous agreement.

Apple did not immediately respond to a request for comment.

In a research note on August 3, UBS analysts estimated that Qualcomm sold $7.26bn of chips to Apple in 2022.

Qualcomm also said a patent licensing deal it signed with Apple in 2019 remains in place. That deal expires in 2025, but the companies have an option to extend it for two years.

“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,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

Apple is working on its own modem technology and spent $1bn to buy Intel’s modem unit in 2019. Apple has not said how quickly it plans to ramp up the use of its own chips.

Qualcomm on Monday said its financial projections will assume that only a fifth of Apple’s iPhones will use its chips by 2026.

However, Qualcomm made a similar projection about its business with Apple in 2021 that turned out to be overly conservative, with iPhone 14 models released last year all using Qualcomm modems.

Last year, Qualcomm CFO Akash Palkhiwala updated his predictions for the 2023 iPhones that will be released this week, saying he expected the “vast majority” of them to include Qualcomm modems.

Reuters