The company set out to design a silicon chip that would allow it to cut ties with Qualcomm, a longtime supplier and bitter foe
5 min
The new iPhone models unveiled last week are missing a proprietary silicon chip that Apple had spent several years and billions of dollars trying to develop in time for the rollout.
The 2018 marching orders from Apple Chief Executive Tim Cook to design and build a modem chip—a part that connects iPhones to wireless carriers—led to the hiring of thousands of engineers. The goal was to sever Apple’s grudging dependence on Qualcomm, a longtime chip supplier that dominates the modem market.
The obstacles to finishing the chip were largely of Apple’s own making, according to former company engineers and executives familiar with the project.
Apple had planned to have its modem chip ready to use in the new iPhone models. But tests late last year found the chip was too slow and prone to overheating. Its circuit board was so big it would take up half an iPhone, making it unusable.
Investors had counted on Apple saving money with an in-house chip to help compensate for weak demand in the larger smartphone market. Apple—which hasn’t publicly acknowledged its modem project, much less its shortcomings—is estimated to have paid more than $7.2 billion to Qualcomm last year for the chips.
Engineering teams working on Apple’s modem chip have been slowed by technical challenges, poor communication and managers split over the wisdom of trying to design the chips rather than buy them, these people said. Teams were siloed in separate groups across the U.S. and abroad without a global leader. Some managers discouraged the airing of bad news from engineers about delays or setbacks, leading to unrealistic goals and blown deadlines.
“Just because Apple builds the best silicon on the planet, it’s ridiculous to think that they could also build a modem,” said former Apple wireless director Jaydeep Ranade, who left the company in 2018, the year the project began.
There were two reasons for the push, said former Apple executives and engineers familiar with the matter: Apple believed it could replicate the success of the microprocessor chips it designed for iPhones. Adoption of those chips fattened profit margins and improved performance for billions of devices. Second, Apple wanted to sever ties with Qualcomm, which it had accused in a 2017 lawsuit of overcharging for its patent royalties.
The companies settled the suit in 2019, and Apple, facing the expiration of its previous Qualcomm agreement, announced a deal last week to continue buying the company’s modem chips through 2026. Apple isn’t expected to produce a comparable chip until late 2025, people familiar with the matter said. There could be further delays, these people said, but the company believes it will eventually succeed.
Apple found that designing a microprocessor, essentially a tiny computer to run software, was easy by comparison. Modem chips, which transmit and receive wireless data, must comply with strict connectivity standards to serve wireless carriers around the world.
“These delays indicate Apple didn’t anticipate the complexity of the effort,” said Serge Willenegger, a former longtime Qualcomm executive who left the company in 2018 and doesn’t know the current state of the Apple chip. “Cellular is a monster.”
Apple’s push to build more of the various semiconductors used in its products stretches back more than a decade. In 2010, the company began using its own processing chips in iPhones and iPads. The chips helped Apple outperform many of its Android rivals, which relied on chips from Qualcomm, Taiwan-based MediaTek and other makers.
The company in 2020 began replacing processor chips from Intel, used for years in Mac computers, with a proprietary chip that allowed its laptops to run faster and generate less heat, improvements that helped boost flagging Mac sales. The Apple chip also saved the company an estimated $75 to $150 on every computer.
Credit for the success of Apple processor chips brought praise and increased authority to Johny Srouji, the company’s chip leader. “After shipping the first iPhone, we decided that the best way to deliver the best experience to our customers is to own and develop and design our silicon in-house,” Srouji said this year at Technion-Israel Institute of Technology, his alma mater.
Apple code-named its modem chip project Sinope, after the nymph in Greek mythology who outsmarted Zeus. It began taking shape in 2018, following the directive of Cook, Srouji, and others for Apple to build its own wireless components, said Chris Deaver, a former Apple human-resources executive and co-founder of BraveCore consultants.
By then, Apple’s relationship with Qualcomm had turned ugly. The companies bickered and swapped accusations of lying, theft and monopolistic practices.
Rubén Caballero, Apple’s longtime head of wireless, supported the Intel chip partnership at the time, while Srouji, senior vice president of hardware technologies, backed the pursuit of a company-built chip, said people involved in the project. Caballero left Apple in 2019.
Many members of Caballero’s team who were versed in wireless chip design were placed under Srouji. Other employees engaged in complementary wireless work, such as antenna design, were split off into the hardware engineering group. One of the top project managers on Srouji’s team had no background in wireless technology, said people who worked on the project.
Apple, which had been poaching engineering talent from Qualcomm for years, stepped up those efforts in March 2019. The company announced a new engineering hub in San Diego, Qualcomm’s hometown, and planned to add around 1,200 local jobs. That summer, Apple announced the acquisition of Intel’s wireless team and a portfolio of wireless patents.
Srouji flew to Munich to greet Apple’s newly acquired Intel wireless employees in December 2019. He told a gathering that the modem-chip project would be a game changer for Apple, the next step in the company’s evolution, said people who watched the meeting. He said the chip would distinguish Apple devices, as Apple’s processors had done.
As Apple filled the project’s ranks with Intel engineers and others hired from Qualcomm, company executives set a goal to have the modem chip ready for fall 2023. It soon became apparent to many of the wireless experts on the project that meeting the goal was impossible.
Apple found that employing the brute force of thousands of engineers, a strategy successful for designing the computer brain of its smartphones and laptops, wasn’t enough to quickly produce a superior modem chip.
Modem chips are trickier to make than processing chips because they must work seamlessly with 5G wireless networks, as well as the 2G, 3G and 4G networks used in countries around the world, each with its own technological quirks. Apple microprocessors run software programs designed solely for its iPhones and laptops.
Apple executives who didn’t have experience with wireless chips set tight timelines that weren’t realistic, former project engineers said. Teams had to build prototype versions of the chips and certify they would work with the many wireless carriers worldwide, a time-consuming job.
Executives better understood the challenge after Apple tested its prototypes late last year. The results weren’t good, according to people familiar with the tests. The chips were essentially three years behind Qualcomm’s best modem chip. Using them threatened to make iPhone wireless speeds slower than its competitors.
The company scratched plans to use the chips in Apple’s 2023 models, and the planned rollout was moved to 2024. Eventually, Apple executives realised the company wouldn’t meet that goal either. Apple instead opened negotiations with Qualcomm to continue supplying the modem chips. Apple’s licensing deal with Qualcomm expires in April 2025, though it can be extended for another two years.
Apple has the cash and the desire to keep pursuing its modem chip, according to people involved with the project.
“Apple isn’t going to give up,” said Edward Snyder, a managing director of Charter Equity Research and a wireless industry expert. “They hate Qualcomm’s living guts.”
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Parts for iPhones to cost more owing to surging demand from AI companies.
4 min
Apple has dominated the electronics supply chain for years. No more.
Artificial-intelligence companies are writing huge checks for chips, memory, specialised glass fibre and more, and they have begun to out-duel Apple in the race to secure components.
Suppliers accustomed to catering to Apple’s every whim are gaining the leverage to demand that the iPhone maker pay more.
Apple’s normally generous profit margins will face pressure this year, analysts say, and consumers could eventually feel the hit.
Chief Executive Tim Cook mentioned the problem in a Thursday earnings call, saying Apple was seeing constraints in its chip supplies and that memory prices were increasing significantly.
Those comments appeared to weigh on Apple shares, which traded flat despite blowout iPhone sales and record company profit.
“Apple is getting squeezed for sure,” said Sravan Kundojjala, who analyses the industry for research firm SemiAnalysis.
AI chip leader Nvidia recently became the largest customer of Taiwan Semiconductor Manufacturing , or TSMC, Nvidia Chief Executive Jensen Huang said on a podcast.
Apple had been TSMC’s biggest customer by a wide margin for years. TSMC is the world’s leading manufacturer of advanced chips for AI servers, smartphones and other computing devices.
Spokesmen for Apple and TSMC declined to comment.
The big computers that handle AI tasks don’t look like the smartphones consumers own, but many companies supply components for both. In particular, memory chips are in short supply as companies such as OpenAI, Alphabet’s Google, Meta , Microsoft and others collectively spend hundreds of billions of dollars to build AI computing capacity.
“The rate of increase in the price of memory is unprecedented,” said Mike Howard , an analyst for research firm TechInsights.
That applies both to the flash memory chips that store photos and videos, called NAND, as well as the memory used to run apps quickly, called DRAM.
By the end of this year, the price of DRAM will quadruple from 2023 levels, and NAND will more than triple, estimates TechInsights.
Howard estimates that Apple could pay $57 more for the two types of memory that go into the base-model iPhone 18 due this fall compared with the base model iPhone 17 currently on sale. For a device that retails for $799, that would be a big hit to profit margins.
Apple’s purchasing power and expertise in designing advanced electronics long made it an unrivaled Goliath among the Asian companies that make most of the iPhone’s parts and assemble the device.
Apple spends billions of dollars a year on NAND, for instance, according to people familiar with the figures, likely making it the single biggest buyer globally. Suppliers flocked to win Apple’s business, hoping to leverage its know-how and prestige to attract other customers.
These days, however, “the companies now pushing the boundaries of human‑scale engineering are the ones like Nvidia,” said Ming-chi Kuo, an analyst with TF International Securities.
Demand for AI hardware is poised to keep growing rapidly. Apple’s spending growth is modest in comparison with what is being spent to fill up AI data centers, even though it is breaking records with huge sales of the iPhone 17.
Samsung Electronics and SK Hynix are raising the price of a type of DRAM chip for Apple, according to people familiar with Apple’s supply chain.
Big AI companies pay generously and are willing to lock in supply and make upfront payments, giving the South Korean chip makers leverage against the iPhone maker.
Apple signs long-term contracts for memory, but it has used its heft to squeeze suppliers.
Its contracts have empowered it to negotiate prices as often as weekly, and to even refuse to buy any memory from a supplier if Apple didn’t view the price as favorable, according to people familiar with its memory purchases.
To boost leverage with suppliers, Apple even began stocking more inventory of memory. That was atypical for Cook, who normally cuts inventory to the bone to maximize Apple’s cash flow.
Apple is fighting not only for current deliveries but also for the attention of engineers at suppliers.
Glass scientists who worked on developing the smoothest and lightest smartphone displays are now also spending time on specialised glass for packaging advanced AI processing chips, according to industry executives.
Makers of sensors and other gizmos inside the iPhone are winning new business from AI companies such as OpenAI that are developing their own hardware.
Still, suppliers said they were far from giving up on business with Apple. Working with Apple is a form of education, they said, because it remains one of the most demanding and disciplined customers in the industry.
TSMC, the Taiwanese chip manufacturer, has built successive generations of its most advanced chips with Apple as its lead customer, relying on the big predictable demand for iPhones.
Now that TSMC is doing more business with Nvidia and other AI companies, people with knowledge of the chip supply chain said Apple was exploring whether some lower-end processors could be made by someone other than TSMC.
One of Apple’s biggest profit-spinners is selling extra memory for far more than the memory chips cost the company.
Last fall Apple discontinued the iPhone Pro model with 128 gigabytes of storage.
Customers who want that model must now start at 256 gigabytes and pay $100 more—the type of move that could be repeated this year to help Apple offset higher costs, wrote Craig Moffett, an analyst at Moffett Nathanson, in an investor note.
However, Apple isn’t expected to raise the price of its next iPhone models over similarly equipped iPhone 17s, said Kuo, the analyst.
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