On Monday, Qualcomm announced its commitment to provide Apple with 5G modems for smartphones until the year 2026. This announcement deviates from earlier predictions by Wall Street analysts and Qualcomm officials, who had anticipated Apple’s transition to an in-house developed 5G modem by 2024.
This continued collaboration with Apple is expected to have a positive impact on Qualcomm’s handset business, which had achieved $5.26 billion in sales in the quarter ending in June. It also serves as a buffer against the potential loss of a significant customer. It’s worth noting that approximately 21% of Qualcomm’s fiscal revenue in 2022, amounting to $44.2 billion, was attributed to Apple, as estimated by UBS.
At present, Qualcomm is the provider of 5G modems for Apple’s iPhones. Nevertheless, Apple has been diligently pursuing the development of its own modem technology with the aim of reducing its reliance on Qualcomm’s chips.
To this end, Apple acquired Intel’s smartphone modem division in 2019 to facilitate the in-house development of modems. However, industry analysts have expressed reservations about the feasibility of Apple completely transitioning away from Qualcomm’s chips due to their intricate nature.
Qualcomm’s Revenue Streams from Apple
In addition to supplying modems, Qualcomm generates revenue from Apple through cellular licensing fees. According to estimates by UBS, these licensing fees amounted to approximately $1.9 billion in 2022.
Furthermore, Qualcomm has affirmed that it continues to receive royalties from Apple as per a six-year agreement that was established at the conclusion of a legal dispute over royalties in 2019.
Qualcomm has stated its anticipation of providing only 20% of the required modems for Apple’s upcoming smartphone launch in 2026. This projection suggests that Qualcomm foresees a potential decrease in its business relationship with Apple in the future. It’s worth noting that Qualcomm has not adjusted its guidance to account for Apple’s sales.
Apple is set to unveil its new iPhones, presumably named iPhone 15, on Tuesday, and these devices are expected to incorporate Qualcomm modems.
Conclusion
Qualcomm will keep providing Apple with 5G modems until 2026, despite earlier predictions. This partnership is essential for Qualcomm’s phone business since Apple is a significant source of revenue.
Apple still wants to make its own modems, but Qualcomm makes money from Apple through licensing fees and royalties, giving them a steady income. The expectation of providing fewer modems suggests changes in their partnership, while Apple’s upcoming iPhone 15 launch with Qualcomm modems adds an interesting twist.
