Qualcomm (QCOM.O) said on Monday it had 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 and looks to reinforce its supply chains elsewhere.
The deal extends a relationship worth billions of dollars to Qualcomm for at least three years beyond what was expected and indicates Apple is not rushing out its own modem, despite moving all its computers to processing chips of its own design.
Qualcomm shares were up 4% in early afternoon trade. The company is the 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 ends this year, meaning that the iPhones that Apple is expected to announce on Tuesday would be the last phone debut under that deal.
Under the accord announced 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 Aug. 3, UBS analysts estimated that Qualcomm sold $7.26 billion 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 $1 billion to buy Intel’s (INTC.O) modem unit in 2019. Apple has not said how quickly it plans to ramp up the use of its own chips.
Qualcomm said on Monday 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.
And last year, Qualcomm Chief Financial Officer 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.