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Apple strikes chip supply agreement with Qualcomm, suggesting it isn't yet ready to go it alone

Qualcomm (QCOM) revealed on Monday it struck a new chip supply agreement with Apple (AAPL).

The partnership stipulates that Qualcomm will provide its Snapdragon 5G Modem‑RF systems for Apple's smartphones launching from 2024 to 2026. The financial terms of the deal aren't being shared, a Qualcomm spokesperson confirmed to Yahoo Finance.

Qualcomm stock jumped over 3% in early trading on Monday while Apple stock rose 1%.

After several years of trying to control its own destiny by making its own chips, Apple has made it clear by linking up with Qualcomm that the company isn't ready to go it alone.

A guest holds the new iPhone 14 at an Apple event at their headquarters in Cupertino, California, U.S. September 7, 2022. REUTERS/Carlos Barria
A guest holds the new iPhone 14 at an Apple event at its headquarters in Cupertino, Calif., Sept. 7, 2022. (Carlos Barria/REUTERS) (Carlos Barria / reuters)

For modem chips, which facilitate wireless connectivity, Apple theoretically has the in-house tech — the company bought Intel's (INTC) modem chip business in 2019. But clearly that in-house technology isn't yet ready for prime time.

It's also a reversal from earlier this year when Qualcomm CEO Cristiano Amon said he was expecting Apple to make its own modems for 2024.

Apple has been very clear about its desire to replace its own suppliers with itself. In 2020, Apple famously nixed a 15-year partnership with Intel, citing plans to build its Macs with its own chips. Since then, a whole range of Macs have come out with Apple's own chips.

However, smartphones have been another story, and the supply chain is a bit more complicated, as iPhones still run on Arm-based chips. Though Apple designs those chips for iPhones in-house, it licenses the underlying structure from Arm.

It's been estimated that Apple could save billions by taking control of its chips.

Apple and Qualcomm have a spotty history of their own, including a yearslong legal tussle over licensing terms. The two companies agreed to drop litigation in 2019.

This is the second consecutive agreement between Apple and Qualcomm, and it's structured similarly to the previous deal.

For Qualcomm, and other Apple suppliers fearing their futures, this agreement is good news for now.

The Qualcomm spokesperson added that the deal isn't factored into the company's guidance for this year as it stands and that the company "may" have to change guidance when it reports next.

This announcement comes on the eve of a key moment for Apple as it sets up to unveil its latest line of iPhones, Apple Watches, and other products. And chips play a part in the very likely rise in prices.

"We believe now is the time to increase iPhone prices modestly as while Apple will keep the base model prices unchanged the enhanced technology, chips, and battery technology in iPhone 15 Pro/Max warrants this strategic pricing move from Apple," Wedbush analyst Dan Ives wrote on Sept. 7.

Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks and on LinkedIn.

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