Qualcomm’s stock experienced an 8.5% increase to $115.21 in premarket trading following the announcement of a three-year contract to provide Apple with 5G communication chips, although the shares had been in the negative year-to-date and had declined by 20% over the past 12 months.
On Monday, Qualcomm announced its commitment to provide Apple with 5G modems for smartphones until 2026.
Past supply agreements between the two companies have proven profitable for Qualcomm, which has faced challenges due to subdued smartphone demand, while for Apple, these deals have incurred substantial costs as the company has not yet transitioned its iPhone chip production in-house.
Sales to Apple will bolster Qualcomm’s handset business, which had $5.26 billion in Q2 sales, and may offset the impact of potentially losing a significant customer, as per a UBS estimate, Apple accounted for approximately 21% of Qualcomm’s $44.2 billion fiscal 2022 revenue.
Additionally, Qualcomm generates revenue from Apple through cellular licensing fees, which amounted to approximately $1.9 billion in 2022.
Qualcomm has confirmed its ongoing receipt of royalties from Apple under a six-year agreement, which was established following the resolution of a 2019 legal dispute between the two companies over royalties. However, Qualcomm anticipates providing only 20% of the modems required for Apple’s smartphone launch in 2026, suggesting its expectation of a potential future decline in its Apple-related business.
(Source: Dean Seal | WSJ | Ian King | Mark Gurman | Bloomberg | Kif Leswing | CNBC)
