Apple To Ditch Qualcomm For In-House Modem Chip

Apple Inc’s AAPL senior vice president of hardware technologies, Johny Srouji, disclosed in the virtual town hall meeting on Thursday that it has started building its own cellular modem chips for future devices, Bloomberg reports.

What Happened: “This year, we kicked off the development of our first internal cellular modem, which will enable another key strategic transition,” Srouji said in the meeting.

Following his comments, QUALCOMM, Inc QCOM shares fell more than 6% in the after-hours session on Thursday, only to retreat some losses.

A cellular modem is one of the most critical parts of a smartphone, enabling phone calls and connection to cellular networks. “Long-term strategic investments like these are a critical part of enabling our products and making sure we have a rich pipeline of innovative technologies for our future,” Srouji added.

Why It Matters: Apple continues to focus on self-reliance for device components. Recently, Apple unveiled a new M1 chip for the Mac lineup in a bid to shift away from Intel Corporation INTC. Though the process for complete self-reliance could take years, Apple has signaled its intentions.

Srouji said that the $1 billion acquisition of Intel’s smartphone modem business in 2019 has helped Apple build a hardware and software engineering team to develop its own cellular modem. 

According to Bloomberg, the iPhone maker is also hiring Qualcomm engineers for years to help design its own modem. 

The cellular modem is just one of the chip Apple designs, including W-series in the Apple Watch and the U1 ultrawide-band chip in the iPhone for precise location information, Srouji said.

Apple’s iPhone 12 lineup that boasts 5G technology uses Qualcomm parts. It is also worth noting that Apple and Qualcomm signed a six-year licensing pact in 2019, and the timing of Apple using its own modem is unclear -- Bloomberg.

Price Action: In the pre-market session on the last check Friday, AAPL shares are down 0.52% at $122.60, QCOM shares are down 3.05% at $155.75, and INTC shares are down by 0.92% at $49.80.