Apple’s risky plan: own modems instead of Qualcomm chips

Apple is preparing to initiate a significant technological change: the company plans to replace the mobile phone chips previously purchased from Qualcomm with its own developments.

Billion dollar investment with uncertain outcome

Johny Srouji, head of Apple’s hardware technology group, emphasized in a Interview with CNBC last year that the company will only develop its own components if this creates real added value for the products. In the case of mobile modems, this does not seem to be the case at first. Qualcomm’s modems are considered top products and are established in the industry.

It is therefore questionable whether Apple can improve this technology in the short term. Despite these challenges, Apple now seems to be investing considerable resources in the development of its own modems, as Bloomberg’s Mark Gurman reported. The company is investing billions of dollars, thousands of engineers and millions of man-hours in the process. However, the immediate benefit to consumers is likely to be limited, as the performance of the devices will initially change little.

Long-term strategy and potential benefits

Apple’s strategy aims at long-term benefits:

• Cost savings: Apple could reduce royalties to Qualcomm, although some payments will still be due due to patents.
• Integration: In the long term, Apple plans to integrate the modem into a new wireless chip that also includes Wi-Fi and Bluetooth. This could lead to improved reliability and battery life.
• Design freedom: Developing its own modems could give Apple more flexibility in designing future iPhones by saving space in the case.

Switching to proprietary modems also carries risks. Apple has experienced setbacks in the past, including problems with performance and overheating. A faulty implementation could lead to a PR disaster similar to the iPhone 4’s “Antennagate.” Gurman points out that developing a modem is “extremely difficult,” as even Srouji has admitted. The complexity of global networks and the need for extensive testing in different environments make the task particularly challenging.

Future prospects and schedule

Experts originally assumed that Apple would begin the transition to its own modems next year at the earliest. However, this timeline has been pushed back significantly. As we reported in February 2024, Apple has extended its supply contract with Qualcomm until March 2027. This suggests that the development of its own modems is progressing more slowly than expected.

Qualcomm CEO Christiano Amon confirmed in a financial statement announcement that Apple has exercised its option to extend the existing patent licensing agreement for two more years. This means that Qualcomm will continue to supply its modem technologies to Apple until at least March 2027. Interestingly, according to Gurman, Apple plans to integrate its modem design into a new wireless chip in the long term, which also takes over Wi-Fi and Bluetooth functions.

This could lead to improved reliability and battery life. Even further in the future is the possibility of integrating all of these functions into the device’s main processor (SoC), which could open up further cost savings and design options. The announcement of Apple’s plans is already having an impact on the market. Some analysts, including Wolfe Research have downgraded Qualcomm’s shares. At the same time, it remains to be seen how Apple’s own modem development will affect the company’s finances and product performance.

Challenges in development

A report by the Wall Street Journal from September 2023 provides insight into the difficulties Apple is facing in developing its own modems (we reported). Despite acquiring Intel’s modem development department and thousands of experienced engineers, the task proved more complex than expected. Developing a 5G modem that is also compatible with the myriad 2G, 3G and 4G cellular frequencies around the world proved to be a major challenge.

Unrealistic goals and deadlines, as well as management problems in coordinating global development teams, exacerbated the situation. Particularly alarming was the revelation that Apple’s prototype chips were tested last year and were slow, “essentially three years behind Qualcomm’s best modem chip.”

Conclusion and outlook

For consumers, the hope is that when the transition finally happens, it will be smooth and most users won’t even notice the change. The true value of this strategy will likely only be seen in a few years, when Apple can realize the full potential of its own modem technology. Gurman’s analysis suggests that Apple is planning for the long term with this move and is willing to accept short-term challenges for potential future benefits.

However, the repeated delays and the extension of the contract with Qualcomm show that the road to its own modems is rockier than originally thought. What do you think of Apple’s strategy to develop its own cellular modems? Do you see this as more of an opportunity or a risk for future iPhones?