Shares of Qualcomm Inc. jumped more than 3.8% today after the chipmaker announced that Apple Inc. will keep using its mobile modem chips for the next three years.

Apple was previously expected to significantly scale back its use of the modems as early as this year.

The announcement of the supply deal comes a day before the launch event for the iPhone 15 handset series. According to Qualcomm, its modem chips will ship with the three subsequent iPhone generations that will roll out in 2024, 2025 and 2026. However, the chipmaker expects to supply only about 20% of the modems that will ship with Apple’s 2026 handsets.

Apple is one of Qualcomm’s most important customers. Its purchases accounted for more than a fifth of the $44.2 billion in revenue that the chipmaker generated last year, according to a UBS Group AG estimate cited by CNBC. Apple mainly buys broadband components that it uses to power its iPhones’ 5G connectivity features. 

Qualcomm provides Apple with 5G modem chips, which turn the data inside a handset into radio signals that be sent over the air to a cell tower. The chipmaker also supplies various supporting components. Those components include miniature 5G antennas for use in smartphones and RF frontends, which perform tasks such as filtering radio interference and amplifying 5G signals.

Apple not only buys chips from Qualcomm but also licenses a collection of networking patents. Those patents cover technologies that are essential to providing wireless connectivity in phones. According to USB, Apple paid $1.9 billion in licensing fees to Qualcomm last year.

Qualcomm’s networking patents were at one point the focus of a high-profile legal battle between the chipmaker and Apple. The litigation ended with a settlement in 2019. Under the deal, Apple agreed to license Qualcomm’s patents for six years with an optional two-year extension.

Around the time the litigation ended, Apple bought Intel Corp.’s former modem chip business for $1 billion. The acquisition kicked off an effort by the iPhone maker to replace Qualcomm’s mobile modem chips with homegrown silicon.

In 2021, the chipmaker forecasted that it would supply only a fraction of 2023 iPhone lineup’s modems. Earlier this year, Qualcomm Chief Executive Officer Cristiano Amon said that his “planning assumption is we’re not providing a modem in ’24.” That Apple now intends to continue buying Qualcomm chips through 2026 suggests its effort to build in-house wireless networking technology may be experiencing delays. 

Apple has significant experience with in-house chip development. The company designs the primary processors of not only its iPhones, but also the Mac computer series and the Apple Watch. Apple’s fastest custom chip, the M2 Ultra, features 20 billion transistors made using a five-nanometer process.

Earlier this year, Bloomberg reported that Qualcomm’s modem chip is not the only third-party iPhone component Apple hopes to replace with custom silicon. The company currently uses a chip from Broadcom Inc. to power its iPhones’ Wi-Fi and Bluetooth features. In 2025, Apple reportedly intends to switch to an internally designed Wi-Fi and Bluetooth module.

Though that module has not yet been brought to market, the iPhone maker is reportedly already working on a second version. The second version is expected to provide not only Wi-Fi and Bluetooth capabilities, but also cellular connectivity like Qualcomm’s modem chips. It’s unclear when the component will roll out to iPhones. 

The financial impact of Apple’s chip development push on Qualcomm should be partly offset by the chipmaker’s market expansion efforts. Over the past few years, Qualcomm has significantly increased its presence in the vehicle processor market. Last year, reports emerged that the company also intends to move into the lucrative server chip market. 

Photo: Qualcomm