Pawan Kumar
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People who know about the situation say that Apple Inc. will drop a key Broadcom Inc. part in 2025 as part of its plan to replace the chips in its devices with homegrown parts. This will hurt one of Apple’s biggest suppliers.
As part of the change, Apple plans to have its first cellular modem chip ready by the end of 2024 or the beginning of 2025. This will allow it to stop buying electronics from Qualcomm Inc., said the people, who asked not to be named because the plans are private. Apple had planned to replace the Qualcomm part this year, but problems with the development have pushed back the date.
Shares of Broadcom dropped as much as 4.7% when the news came out, but then they stopped going down. The shares ended the day at $576.89, which was 2% less than where they started. Qualcomm fell as much as 1.6% before ending the day with a 0.6% loss at $114.61. Apple’s price went up 0.4%, to $130.15.
The moves will shake up even more an industry that makes billions of dollars by making chips for Apple. Already, the most valuable tech company in the world has taken most Intel Corp. processors out of its Mac computers and put in Apple Silicon chips instead. Now, the biggest companies that make wireless electronics are having to deal with the changes.
More than half of Apple’s $394.3 billion in revenue last year came from sales of the iPhone. The phone has also helped Broadcom grow. During earnings calls, Broadcom calls Apple its “large North American customer.” The chipmaker makes a single part that Apple devices use to handle both Wi-Fi and Bluetooth.
People say that Apple is making its own chip to replace that one and plans to start using it in its products in 2025. Also, it is already working on a new version that will combine cellular modem, Wi-Fi, and Bluetooth into a single component.
A representative for Apple, which is based in Cupertino, California, declined to say anything. Broadcom didn’t say anything right away.
Broadcom still gives Apple some parts, like radio-frequency chips and chips that handle wireless charging, but Apple has been working on customising those parts as well.
During a conference call last month, Hock Tan, the CEO of Broadcom, said he was sure that his company would keep its position at Apple.
He said, “We think we have the best technology and give our customers good value.” “There’s no reason to try to be the best at something else.”
Qualcomm wouldn’t say anything more than what the company has already said about the issue.
In November, the chipmaker said that it expected to supply the vast majority of modems for the launch of the iPhone in 2023. Before that, it had thought that it would only supply 20% of the modems. “Other than this, our planning assumptions haven’t changed, and we expect Apple products to bring in a small amount of money in fiscal 25,” Qualcomm said.
With the switch away from Qualcomm modems, Apple plans to use its homegrown component in just one new product, like an iPhone with more features, at first. It will then slowly stop using Qualcomm modems over a period that it thinks will last about three years. This is similar to how it made changes in the past.
But so far, the switch hasn’t been easy. The company wanted to release its own cellular modem by this year, but it had trouble with overheating, battery life, and getting the part approved. At the moment, the iPhone works with more than 100 wireless carriers in more than 175 countries. This means that it has to go through a long and difficult testing process.
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A cellular modem is what lets iPhones make phone calls and connect to the internet when they aren’t near Wi-Fi. For most people, this is the most important part of the device. If Apple’s offering isn’t as good as Qualcomm’s, it could hurt the company’s most popular product in a big way.
The iPhone brings in the most money for Apple.
In the last fiscal year, the product brought in more than $200 billion.
The long changeover could also put Apple in a tough spot. The company will still need Qualcomm for a few years while it replaces the part in different devices.
Apple began working on its modem around 2018, when it opened an office near Qualcomm’s headquarters in San Diego. To speed up development, the company bought Intel’s modem division for $1 billion in 2019 and opened more offices in key areas where wireless technology development is known to be happening.
Apple puts together a team in a new office to make wireless chips.
The work on Wi-Fi and Bluetooth chips is newer, so it will take longer to get them out. But Apple has made wireless chips before. The H2 processor in AirPods and the W3 chip in Apple Watches are two examples.
Apple and Qualcomm fought in court over royalties and patents related to modems until 2019, when they reached a settlement. At the time, Apple thought that the truce was necessary so that the iPhone could support 5G by 2020. The companies decided that Qualcomm would keep giving Apple parts until 2024.
Apple has also had trouble getting along with Broadcom. The CEO of the chipmaker, Tan, has a reputation for being tough in negotiations. During the supply crunch caused by the pandemic, he forced some customers to make orders that couldn’t be cancelled.
Apple said in 2020 that it would buy Broadcom chips for a total of $15 billion. This deal would last until the middle of 2023. Even though Apple is Broadcom’s biggest customer, Tan hasn’t always been as committed to the market. Before the 2020 deal, Tan said that Broadcom might sell the part of its business that makes chips for Apple.
Wells Fargo & Co. analyst Aaron Rakers said in a report that Apple’s next steps are another thing for Broadcom investors to worry about.
“It is well-known that Apple continues to design more and more of its parts in-house. From Broadcom’s point of view, this is likely to hurt investor sentiment, given how much Apple’s sales help the company,” he said.
