Shares of mobile chip giant Qualcomm (NASDAQ: QCOM) have surged today, up by 10% as of 11:45 a.m. EDT, on continued optimism after the company settled its sprawling legal battle with Apple (NASDAQ: AAPL). That announcement came during market hours yesterday, but just hours later rival Intel (NASDAQ: INTC) officially threw in the towel in the 5G race.
Yesterday evening, Intel said it would exit the 5G smartphone modem business and refocus its efforts on other parts of the 5G ecosystem, such as network infrastructure. Intel's development has reportedly been behind schedule and run into numerous technical challenges, which threatened to derail Apple's own product road map for a 5G-enabled iPhone. Intel was Apple's exclusive modem supplier for the 2018 product cycle. Chipzilla's exit will give Qualcomm an even tighter grip on the next generation of smartphones.
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Qualcomm's settlement with Apple included both a global patent license agreement as well as a multiyear chipset supply agreement. No financial terms were disclosed beyond acknowledging a payment from Apple to Qualcomm.
It's too late to include Qualcomm's 5G modems in the 2019 iPhones, but the deal will secure Apple access to 5G modems for 2020. Intel said the press release that it did not see a "clear path to profitability and positive returns in the smartphone modem business." Apple acknowledged in January that it had been in talks with other 5G modem suppliers amid Intel's ongoing development challenges. Qualcomm says that the business with Apple should add $2 to earnings per share, with CEO Steve Mollenkopf commenting, "The reality is two great product companies, it's a natural position for them to work together and want to work together."
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Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool owns shares of Qualcomm and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.