Apple's relationship with Qualcomm has been difficult, to say the least, because of disagreements over royalty payments and IP on chipsets, which resulted in prolonged and entangled legal conflicts. These have been resolved to a sufficient degree to give Apple the option to pursue a closer relationship with Qualcomm, something which makes sense for both companies because their technology roadmaps are closely aligned on several fronts: 5G, wearables, and personal computing. If the companies move on from past tensions and agree the commercial terms of an agreement, they can realize significant benefits from being among the leaders in their fields, put further distance between themselves and their respective competitors for new products, and in the process supercharge the global 5G market.
Past legal conflict hangs over future products
Apple's attempts to move away from Qualcomm chipsets culminated in Apple's bid to buy Intel's chipset business in order to achieve full control over its chipset future for 5G and beyond. This strategy fell apart in April 2019, when Apple walked away from any deal. Apple's withdrawal was widely reported to be because Intel's 5G chipset technology wasn't sufficiently advanced. While Apple is right to aim to move chipset design in-house, it could still source 5G chipsets externally to accelerate product launches while it builds up its own capabilities in this area, which would prevent it from lagging behind rivals in the launch of 5G products.
In terms of smartphones, Qualcomm is in the leading pack with its 5G chipset line, which currently powers the majority of 5G devices including Samsung's S10. In wearables, Qualcomm's Mobile XR project aims to enable 5G connectivity in devices such as sunglasses, an area that Apple is expected to move into when the technology is ready. And in personal computing, Qualcomm is looking to bring 5G connectivity and low power consumption to laptops, with the recent Lenovo tie-up pointing to an always-connected mobile laptop future. So the question for Apple is: Does it wait to try to produce 5G chipsets for these new categories better, faster, and at lower cost than Qualcomm? Or does it adopt a twin-track approach that balances current market appetite with the company's in-house chipset ambitions?
A 5G iPhone would supercharge the global telecoms market
By far, the biggest near-term impact of an Apple-Qualcomm chipset partnership would be on the global 5G industry. Service providers have deployed 5G networks much faster than many in the industry expected and have been able to do so because of infrastructure and chipset vendors' accelerated work on 5G technology. As a result, there are currently 15 5G networks in commercial operation, and South Korea, in just three months, has already passed 1 million 5G subscriptions. As happened with 4G, the faster speeds and response times that the latest technology offers smartphone users are reason enough for many to buy 5G devices and price plans. And because leading 5G operators have at least as aggressive network rollout plans as they had with 4G, we can expect that 5G subscription growth and revenues will continue to accelerate and outpace previous generations.
However, for operators with high numbers of iPhone users, the lack of a 5G smartphone puts a ceiling on the number of 5G price plans they can sell. As per the company's policy of absolute secrecy on product roadmaps, Apple hasn't indicated when it will launch a 5G iPhone, although current best guesses suggest it won't arrive until 2020. While this timeframe was reasonable based on the growth trajectory of previous mobile technologies, 5G is proving to be very different. Apple, Qualcomm, the telecoms industry, and consumers would all see huge benefits if the companies could move on from past disputes and join forces to supercharge the global 5G market. If Apple launched a 5G iPhone this year, it would be a huge catalyst for 5G subscription growth, cause network operators to further accelerate network rollout plans and give current iPhone users a clear reason to upgrade.
Apple's 1Q19 Digital Services Launch: Key Consumer and Entertainment Trends, CES004-000086 (April 2019)
Apple's 1Q19 Digital Services Launch: Report Data Pack, CES003-000482 (April 2019)
Consumer and Entertainment Profile: Apple, CES004-000031 (June 2018)
5G: Regional and Global Approaches to a Technology Step Change, GLB007-000092 (July 2018)
5G: Impact and Opportunities, GLB008-000001 (January 2019)
Paul Lambert, Senior Analyst, Europe