Apple is set to take the fight to Qualcomm in the cellular modem market with in-house solutions that the iPhone maker plans to launch in 2025, Bloomberg suggests. It is also a major strategic change for Apple in its supply chain as it tries to bring more manufacturing of iPhone parts in-house.
Apple’s Plan to Ditch Qualcomm: A Three-Year Modem Strategy
Qualcomm’s modem chips are Qualcomm’s principal products, and Apple intends to phase them out over the next 3 years, with total elimination by 2027. This aggressive roadmap indicates that Apple is very confident in its capabilities to build efficient modem solutions, an arena in which Qualcomm was dominant.
Indeed, Qualcomm has been expecting this for years after it informed its investors that it would lose a major customer, which is Apple. The transition could affect Qualcomm’s revenue, but the company still has many customers and is still the leading company in the development of 5G technology.
It makes a lot of sense in Apple’s larger plans to move more hardware production in-house, as well as with its own hit-and-miss experiment with M-series Mac processors. Holding the keys to modem chip manufacturing also allowed Apple to fine-tune it as well as squeeze more features out at cheaper costs over its own devices and achieve full control on the connectivity aspect.
Apple and Qualcomm both design and manufacture modems for smartphones, and while the latter company remains the industry leader, the former has now released its modems to face off against those of Qualcomm. If successful, the plan of Apple may drastically alter the mobile connectivity market, thus strengthening its image as the technology industry leader and pioneer.
Apple’s In-House Modems Threaten Qualcomm’s Future Revenue
Apple is currently committed to using Qualcomm modem chips through at least 2026, but there is that sense of urgency as Apple clocks in its development of its in-house modems. Investors are waiting to see whether Qualcomm can replace that lost revenue stream from Apple with growth out of segments like AI-powered data centers and notebooks.
Apple’s first internal modem is said to first appear in the iPhone SE, the company’s low-cost phone, which is due for an update in 2024 after a two-year gap. The rollout will act as a stepping stone for Apple’s modem technology as subsequent generations of modems integrated more advanced features.
This means that through this gradual transition strategy, Apple can fine-tune its technology without running into problems such as those associated with a shift away from Qualcomm’s well-developed solutions. At the same time, Qualcomm has the problem of maintaining its dominating position in the sphere of mobile chips and gaining a foothold in fresh segments.
This move obviously falls in line with Apple’s long-standing tendency to design more and more of the supply chain themselves in an effort to exert more control over the production process. It is similar to Apple's transition to its M-series processors for Macs, which has dramatically improved the company’s hardware efficiency along with its margins.
Apple is expected to further ramp up the battle with Qualcomm as the iPhone maker’s own developed chips become more developed. Although Qualcomm's attempts at diversification are helpful, the possibility of losing a significant client such as Apple should remind industries, especially semiconductors, that change is the only constant.
Apple’s Modem Ambitions: A $1 Billion Gamble on Independence
Apple’s efforts to build its modem have intensified, which is an essential development for the company’s long-term plan of integrating separate components in-house. The latest act of vertical integration was in 2019 when Apple bought Intel’s modem unit for $1 billion and collaborated its modem engineers with the team that designs its own silicon.
The decision comes as the world’s most valuable technology company plans to take on Qualcomm, Apple’s previous supplier for modem chips in the iPhones. Qualcomm has long held a monopoly on the cellular modem market, and while Apple has no plans to take over that industry, it aims to overthrow this monopoly and produce vertically integrated goods that are optimized for its environment.
Besides modem development, it has diversified its supply chain through the multibillion-dollar deal with Broadcom to make 5G radio frequency components. This agreement also conforms to another Apple approach of managing the entire value chain for key technologies while affecting other players such as Skyworks Solutions and Qorvo, who might lose to Broadcom’s new, broader role.
This focus on modems makes a lot of sense given Apple's past efforts to minimize its reliance on outside suppliers. Apple’s swap to in-terminal M-series processors of Macs demonstrated their prowess in providing performance improvement strategies that reduce both production complexity and costs. The modern effort is similar to the above in that it is designed to promote development and improve control.
The situation is quite critical for Apple since modem manufacture is a complicated and lengthy process. Still, basically, the entrance into this market segment can bring Apple not only negative consequences for Qualcomm revenues but also change the general direction of the semiconductor market, again strengthening Apple’s image as one of the technological leaders and the company’s strategic self-sufficiency.
