Sept 11 (Reuters) – Qualcomm ( QCOM.O ) on Monday signed a deal with Apple ( AAPL.O ) to supply 5G chips until at least 2026, at a time when the iPhone maker faces increased challenges in China. To strengthen its supply chains elsewhere.
The deal extends a relationship worth billions of dollars to Qualcomm for at least three more years and signals that Apple is not ditching its own modem, even as it moves all of its computers to process chips of its own design.
Qualcomm shares rose 4% in afternoon trading. The company is a leading designer of modem chips that connect phones to mobile data networks. Apple shares rose 0.5%.
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 expires this year, meaning the iPhones announced by Apple on Tuesday will be the last phones introduced under that agreement.
Under the agreement announced on Monday, Qualcomm said it would supply Apple with chips for phones released every year until 2026. Qualcomm did not disclose the value of the deal, saying only that the terms were “similar” to its previous deal.
Apple did not immediately respond to a request for comment.
In a research note on Aug. 3, UBS analysts estimated that Qualcomm sold $7.26 billion of chips to Apple in 2022.
Qualcomm also said the patent licensing agreement it signed with Apple in 2019 remains in effect. That deal expires in 2025, but the companies have the option to extend it by two years.
“At a time when Apple faces increasing challenges in China, strengthening its supply chains elsewhere is a priority, and the company is withdrawing or at least delaying plans to go solo in more areas with its own chip production,” said Susanna Streeter, head of money 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 hasn’t said how quickly it plans to ramp up use of its own chips.
Qualcomm on Monday said its financial projections assume that only a fifth of Apple’s iPhones will use its chips by 2026.
However, Qualcomm made a similar plan about its business with Apple in 2021, which turned out to be overly conservative, with all iPhone 14 models released last year using Qualcomm modems.
Last year, Qualcomm’s chief financial officer Akash Balkiwala updated his forecasts for 2023 iPhones to be released this week, saying he expected “most” of them to include Qualcomm modems.
Reporting by Stephen Nellis in San Francisco; Additional reporting by Yuvraj Malik in Bangalore; Editing by Mirel Fahmy, David Holmes and Richard Chang
Our Standards: Thomson Reuters Trust Principles.