Apple signs multiple year supply agreements with a major chipmaker

Apple signs multiple year supply agreements with a major chipmaker
A filing made by Broadcom with the SEC today (via CNBC) revealed that Apple has signed two multi-year deals with chipmaker Broadcom that are separate from current agreements with the latter that supply Apple with radio frequency components and modules. Altogether, Apple's business could generate $15 billion in revenue for Broadcom. In December, Broadcom said that business from Apple represented 25% of its gross in 2018 and 20% last year. In 2019, Apple and Broadcom settled a patent suit which led the two firms to sign a 2019 "statement of work" (SOW) and the just-announced 2020 SOW. 

According to the SEC filing, the parts being purchased by Apple will be used in new products over a three and a half year period. While the SEC 8-K submission did not specify exactly which components Broadcom will supply to Apple, the chipmaker's Bluetooth and Wi-Fi chips and its Avago branded RF front-end chip are all found inside Apple's iPhone 11 series.

Broadcom shares soared on news of the two new statements of work with Apple


With Apple looking to launch 5G enabled iPhone models later this year, it is quite possible that the deals with Broadcom may supply it with 5G components. One analyst, Patrick Moorhead from Moor Insights, says that it is also possible that the deals announced today are for parts related to 4G LTE connectivity. Broadcom is one of Apple's largest American parts suppliers with J.P. Morgan computing in 2018 that each iPhone contained $10 worth of Broadcom components.

Broadcom investors fell over each other throwing money at the stock today. During the regular trading session, the shares rose $6.77 or 2.16% to close at $319.65. In after-hours trading after the news broke, Broadcom soared another $8.33 or 2.61% to $327.98.


You might recall that in November 2017, Broadcom offered to buy chipmaker Qualcomm; among other things, the firm designs the Snapdragon line of wireless chipsets and wireless modems. The merger proposal was rejected by Qualcomm and Broadcom then rose the price it was willing to pay for the San Diego based company. But Qualcomm said it still wouldn't be interested unless the price was hiked to $160 billion.

Eventually, President Donald Trump put the kibosh on the takeover talk by claiming that a Broadcom acquisition of Qualcomm would put national security at risk. Trump signed an executive order immediately blocking the merger from moving forward. This came about after a March 2018 letter from the U.S. Treasury's Committee on Foreign Investment in the United States (CFIUS) was sent to two Broadcom lawyers. The letter pointed out that since Broadcom was headquartered in a foreign country, Qualcomm's assets could be exploited by "third party foreign entities."

Looking to keep the deal alive, Broadcom moved up its previous plans to establish itself as a U.S. company registered in Delaware. But before this could ever happen, Trump put the blocked the deal. At the time, an official statement from the president read, "There is credible evidence that leads me to believe that Broadcom Limited, a limited company organized under the laws of Singapore (Broadcom)...through exercising control of Qualcomm Incorporated (Qualcomm), a Delaware corporation, might take action that threatens to impair the national security of the United States."

As with many things wireless these days, the scare over national security revolves around the next generation of wireless connectivity, 5G. Qualcomm's 5G modem chips will be found in the vast majority of 5G handsets in the states and the Trump administration was concerned, like it is with Huawei, about a foreign country gaining access to private information from U.S. citizens and corporations.

While the president prevented Broadcom from purchasing Qualcomm, it is interesting that nothing is done to prevent Apple from using the company's components for its 5G phones. Which begs the question, was the national security of the U.S. really threatened by the proposed Broadcom acquisition of Qualcomm?

FEATURED VIDEO

2 Comments

1. sgodsell

Posts: 7674; Member since: Mar 16, 2013

Broadcom RF chip business made 2.2 billion in 2019. Plus it was stated in December that Broadcom's RF chip business was worth 10 billion. Not to mention the rumors of Apple purchasing Broadcom's RF chip business. Now all of a sudden Broadcom and Apple is buying 15 billion dollars of chips from Broadcom. Yet Broadcom's RF chip business was only worth 10 billion in December. This makes no sense to me, especially when Apple could be pocketing more money by purchasing Broadcom's business.

2. Vokilam

Posts: 1483; Member since: Mar 15, 2018

Based on all your posts - everything Apple does makes no sense to you.

Latest Stories

This copy is for your personal, non-commercial use only. You can order presentation-ready copies for distribution to your colleagues, clients or customers at https://www.parsintl.com/phonearena or use the Reprints & Permissions tool that appears at the bottom of each web page. Visit https://www.parsintl.com/ for samples and additional information.
FCC OKs Cingular's purchase of AT&T Wireless