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Apple's chief chip executive told employees on Thursday that Apple has begun to build its own cellular modem for future devices, a move that will replace Qualcomm's components.

People familiar with the matter said that Apple's senior vice president of hardware technology Srouji (Johny Srouji) made the disclosure during a meeting with Apple employees at City Hall. Qualcomm shares fell as much as 6.3% in after-hours trading.

He said: “This year, we started the development of the first in-house cellular modem, which will enable another key strategic transition.” “Long-term strategic investment like this is to realize our products and ensure that we have a wealth of innovative technologies. Meet the key part of our future.”

A cellular modem is one of the most important parts of a smart phone. It can make phone calls and connect to the Internet through a cellular network.

Srouji said that the acquisition of Intel's modem business for US$1 billion (approximately Rs 74 billion) in 2019 helped Apple build a team of hardware and software engineers to develop its own cellular modem. He said that the modem is one of several wireless chips designed the company, including the W series of Apple Watch and the U1 ultra-wideband chip of the iPhone, to obtain location information.

The latest iPhone models equipped with 5G use Qualcomm parts. Prior to this, Apple had used Intel components for several years and then purchased the business unit from chip manufacturers.

Srouji did not disclose when the cellular modem is ready to be delivered in the product, but the 2019 patent agreement between Apple and Qualcomm includes a six-year license agreement. Qualcomm charges phone manufacturers a license fee based on the wireless patents it owns, regardless of whether use its chips or not.

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In meetings with employees, Srouji also highlighted Apple's other work on the chip, including the new M1 processor in the latest MacBook Air, MacBook Pro and Mac mini. Srouji said that Apple is studying the “family” of Mac chips. According to a Bloomberg report earlier this week, Apple is planning an upgrade to improve Intel's fastest computer chip.

Apple has been hiring Qualcomm engineers for many years to help it manufacture modems, and Apple has offices in San Diego, Cupertino, California, and Europe, dedicated to this work.

This move expanded Apple's reliance on its own parts, and Qualcomm, Intel and other companies paid the price. According to data compiled by Bloomberg, about 11% of Qualcomm's revenue comes from Apple, while about 7% of Intel's revenue comes from iPhone manufacturers.

Apple started selling its own chips in 2010 using the A4 main processor on the iPhone 4 and the original iPad. Since then, Apple has extended this work to custom camera processors, chips that handle artificial intelligence tasks and collect exercise data, and chips for Apple Watch, Apple TV, and headphones.

The Mac processor is one of Apple's most ambitious chip designs to date. The development of cellular modems is also challenging.

©2020 Bloomberg (Bloomberg LP)

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