Apple Inc.’s (AAPL) bitter dispute with long-term hardware partner Qualcomm Inc. (QCOM) has led the iPhone maker to start designing new models with chips sourced by other companies, people familiar with the matter told the Wall Street Journal. Qualcomm stock fell as much as 7 percent in pre-market trading this morning on the news.
Sources said Apple now plans to build next year iPhone and iPad models with modem chips made by Intel Corp. (INTC) and maybe even Taiwan's MediaTek Inc. because San Diego, California-based Qualcomm allegedly withheld access to critical software. Qualcomm, which has worked with Apple for a decade, stopped sharing software used to test chips in iPhone and iPad prototypes after Apple filed a federal lawsuit accusing the company of using its market dominance to charge excessive royalties for its patented products. (See also: Qualcomm Countersues Apple.)
Apple’s switch to rival chip providers is expected to affect iPhones released in the fall of 2018, although the sources added that the Cupertino, California-based company still has plenty of time to change its mind.
Qualcomm disputed reports that it no longer provides fully tested chips for iPhones. “We are committed to supporting Apple’s new devices consistent with our support of all others in the industry,” Qualcomm said in a statement, reported on by Reuters. An Apple representative said the company doesn’t comment on future products.
Qualcomm is the industry’s biggest supplier of modem chips, used to help smartphones connect to wireless data networks. Apple previously used only Qualcomm modem chips for iPhones. However, beginning with some of last year’s iPhone 7 and 7 Plus models, as well as this year’s iPhone 8 and iPhone 8 plus, the phone maker reportedly used some chips made by Intel. (See also: Did Apple Poach a Qualcomm Engineer to Develop Chips In-House?)
Bernstein analyst Stacy Rasgon said Intel has provided upward of half of Apple’s modem chips for iPhones in recent years, according to Reuters. Intel has been able to better compete with Qualcomm, Rasgon added, thanks to an acquisition it made in 2015. CNBC has called Rasgon the industry's number one chip analyst.
Rasgon, who wasn’t surprised by Apple’s decision to stop using Qualcomm’s chips, added that Apple still has plenty of time to change its mind. “Apple is big enough that they want to support multiple paths, they can do that,” he said, noting that Samsung Electronics Co Ltd (SSNLF) did this, too. A couple of years ago, Samsung designed Qualcomm out, but Qualcomm didn’t even know until it was close to time to ship Samsung’s phones.” (See also: Qualcomm Profit Tanks Without Royalties From Apple.)