Apple’s greatest chip challenge: Replacing Qualcomm cellular modems

Apple Inc. has change into a chip powerhouse previously decade, beating among the semiconductor business’s main corporations at their very own recreation. But the iPhone maker is embarking on its largest problem thus far because it tries to switch Qualcomm Inc. cellular modems with its personal design.

Qualcomm slumped greater than 7% to $144.28 on Friday, its steepest decline since June, after Bloomberg reported that Apple kicked off growth of its personal modem this yr. That response underestimates the duty that confronts Apple in coming years, in response to analysts. Some even questioned whether or not the Cupertino, California-based know-how big can succeed.

“The question is about if and when Apple’s initiative will be successful,” Chris Caso of Raymond James mentioned. “Apple’s potential for success in developing a leading-edge modem is by no means assured.”

Modems are some of the vital parts in an iPhone, connecting the gadget to cellular networks so customers can browse the online, entry apps and make telephone calls. Getting this to work easily all over the place requires layers of specialised engineering and broad business know-how that takes time to amass.

Wireless carriers build networks in several methods, utilizing distinct radio frequencies and ranging gear that should conform to native guidelines. Modems should combine with this various know-how, whereas additionally hopping again onto older wi-fi methods seamlessly. That complexity has elevated with the ever-growing want for knowledge and the technical methods used to ship it.

This requires rigorous area testing. Qualcomm runs labs that replicate the surroundings that any telephone will expertise anyplace on the planet. Its engineers have labored with carriers for many years to tune their methods and ensure all the pieces works in sync. That information and expertise has acted as a barrier to different corporations breaking its stranglehold on this profitable a part of the semiconductor business.

“Notwithstanding Apple’s admittedly considerable semiconductor design expertise, modems are challenging beasts,” Bernstein Research analysts wrote in a observe to buyers on Friday. “It took them 5-10 years to develop a viable PC processor even with annual iPad iterations, and modems are likely to present a greater challenge.”

Qualcomm has one other necessary benefit, in response to Caso of Raymond James. The company collaborates with the wi-fi business to develop cellular requirements, which regularly helps its chips be first to market with new options. That has saved Qualcomm forward of different potent challengers, together with Samsung Electronics Co., which has developed its personal inner modem however nonetheless makes use of Qualcomm for some Galaxy smartphones, Caso mentioned.

Still, Apple has taken on highly effective business gamers and overwhelmed them previously. The company spent years designing its personal PC processors to switch Intel Corp. in Macs. It has used its personal most important processors within the iPhone and iPad since 2010 with specs which have lengthy outpaced competing designs. Apple has additionally developed its personal power-management chips and wi-fi chips for location knowledge, headphones and the Apple Watch.

There’s already proof that the modem problem can be tougher, although. Qualcomm’s know-how, significantly for 5G handsets, has been so nicely regarded that Apple settled a wide-ranging patent lawsuit and struck a multi billion-dollar settlement with the San Diego-based chipmaker to get its modems contained in the 5G iPhone 12 vary this yr.

Another indication of the scale of the problem comes from a serious acquisition final yr. Apple usually doesn’t do massive offers, preferring to build its personal know-how. But in 2019 the company acquired Intel’s modem unit for $1 billion. Johny Srouji, Apple’s senior vp of {hardware} applied sciences, mentioned this week that the acquisition helped the company rapidly build the staff of {hardware} and software engineers it must develop its personal modem.

In 2018, Apple additionally opened an office close to Qualcomm’s San Diego, California headquarters and began recruiting their engineers.

“It could take several years and potentially longer before Apple can transition from using Qualcomm for its complex iPhones,” Mike Walkley, a Canacord Genuity analyst, wrote in a observe to buyers. “Qualcomm is several years ahead.”

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