Why Is Apple Building Own Modem? Company Plays Long Game in Dropping Qualcomm

Apple’s move to drop Qualcomm modem chips won’t have a payoff at the outset, but it could set the stage for bigger things later. Also: The company pushes ahead with a tabletop robot; Google’s new Pixel devices show how far ahead it is in AI; and the iPhone payment chip will be opened up to third parties.

Last week in Power On: Apple’s iPhone 16 will keep sales stable until bigger changes arrive.

Apple Inc.’s hardware technologies group is one of its greatest strengths. The team created breakthrough processors for the iPhone and iPad and allowed Apple to dump Intel Corp. chips from its entire Mac lineup. It also invented features like Touch ID and Face ID.

The company’s chip designers are widely seen as the best in the industry, helping Apple products stand out with speed and battery efficiency. The team started with the A4 chip in the original iPad and now has technology in every major Apple device. It also helped customize suppliers’ components, such as displays and batteries.

The work has paved the way for improved photography, advanced wireless syncing between devices, faster data transfers and some of the crispest OLED displays in the industry.

In other words, Apple’s custom silicon efforts are focused on making its devices work better — and work better together. And that’s always been the goal, according to Johny Srouji, who runs the team. In areas where Apple wouldn’t see an improvement by developing its own technology, the company is happy to use an outside component, he has said.

Srouji laid out the strategy in an interview with CNBC last year. If relying on off-the-shelf technology delivers the desired objective for a product, “we’ll do it, because I want to focus the team on what really, really matters,” he said.

But his team’s current effort to build an in-house cellular modem — a key component for the iPhone, Apple Watch and other devices — won’t have a major payoff at the outset. Instead, the company is playing the long game, hoping its modem will evolve into a more advanced component that could ultimately change the way an iPhone looks and works.

For more than a decade, Apple has used modem chips designed by Qualcomm Inc., the industry leader for connecting phones to cellular networks. The modem is arguably the most important component in the phone after the main processor, and it’s not easy to make. But in 2018 — while facing a legal battle over royalties and patents — Apple started work on its own modem design.

Unlike in other areas, such as processors, AI engines and sensors, it’s hard to see how you improve on the Qualcomm modem design. The existing chip is already state-of-the-art. And it’s been battle-tested by phone carriers around the world, making it highly reliable.

For now, it’s unlikely that any upgrades Apple makes to the part will result in a better experience for users. In the same CNBC interview, Srouji acknowledged that developing a modem was “extremely difficult to do.”

But Apple is plowing ahead anyway. It’s devoting billions of dollars, thousands of engineers and millions of working hours to a project that won’t really improve its devices — at least at the outset.

Even people within Apple acknowledge that customers don’t really care who makes the modem in their phone. The project will allow the company to say that it produces the most important iPhone components in-house, which might be a marketing point. But the user experience won’t noticeably change.

Over the past few years, Apple’s modem project has suffered numerous setbacks. There have been problems with performance and overheating, and Apple has been forced to push back the modem’s debut until next year at the earliest. The rollout will take place on a gradual basis — starting with niche models — and take a few years to complete. In a sign of this slow transition, Apple extended its supplier agreement with Qualcomm through March 2027.

Saving money is one reason for the move. The iPhone maker has argued for years that it pays Qualcomm too much for modems. But Qualcomm has said that Apple will still have to pay it some royalties regardless (the chipmaker believes that Apple won’t be able to avoid infringing its patents).

So it’s hard to tell how big the benefits will be in the near term. Down the road, there are plans for Apple to fold its modem design into a new wireless chip that handles Wi-Fi and Bluetooth access. That would create a single connectivity component, potentially improving reliability and battery life.

There’s also the possibility that Apple could one day combine all of this into the device’s main system on a chip, or SoC. That could further cut costs and save space inside the iPhone, allowing for more design choices. Furthermore, if Apple does ultimately save money by switching away from Qualcomm, it could redirect that spending toward new features and components.

Apple’s modem shift could be akin to the development of its neural engine — the part of the processor that handles AI. The benefits weren’t obvious when that component launched in 2017, but it has now been validated by the industry’s focus on AI.

Before Apple began using Qualcomm modems in 2011, the company mostly relied on Infineon Technologies AG chips. Back then, people frequently complained about poor data connectivity and the dropping of phone calls. From 2016 to early 2020, Apple used Intel modems, but they also drew complaints.

Modems need to be tested globally across many different environments, and moving more than a billion users to an in-house model carries a lot of risk. If Apple messes this up, it could conceivably be the biggest iPhone scandal since Antennagate. (In that instance, Apple offered a free carrying case to fix a reception issue — something that probably wouldn’t do the trick this time around.)

I’d bet heavily against Srouji letting that kind of crisis unfold. But the new modem will undoubtedly come under scrutiny. There will be speed test comparisons on YouTube, and some customers will no doubt blame glitches and call drops on the change.

The best-case scenario is that it all goes smoothly, and most customers aren’t even aware of the switch. But the project’s real worth won’t be tested until years later — when, Apple hopes, it sets the stage for a better iPhone.

Apple’s next big thing: a tabletop robotic iPad for about $1,000. The company is pushing forward with its first robotic device, a product designed to take advantage of artificial intelligence advances. It will essentially be an iPad connected to a robot arm, which will be able to swivel the screen in any direction and spin it around 360 degrees. Imagine something like an Amazon Echo Show or Meta Portal on steroids. The screen will be the face of the robot, and users will be able to fully control it with their voice.

You can think of its as Apple’s first product for the AI era. The robot probably won’t debut until 2026 or 2027, but given that Apple has been a laggard in AI, that schedule will give it time to catch up.

This product, if it indeed reaches the market as planned, will probably be the first of many robotic devices from Apple. The company has teams working on a mobile robot that can roam around the home, and some are even investigating the prospect of humanoid models. In many ways, this is a second life for Apple’s failed car project. A self-driving vehicle is essentially a gigantic mobile robot, but it has to operate correctly 100% of the time. A home robot — driving down hallways rather than city streets — can probably work 80% of the time and still be effective.

The big question is if this new device will be a significant moneymaker for Apple — or even excite consumers. If it comes in at $1,000, I think it’s probably going to do as well as the original HomePod and Vision Pro (not very). Like the Vision Pro, this new product is already shaping up to be an engineering marvel rather than something consumers are going to want in large quantities. Apple still needs a major new hit — on the scale of its smartwatch or iPad — and that remains a challenge.

Google’s new devices show how far ahead it is in AI. I’ve been beating the drum for weeks that Apple Intelligence is actually not that impressive. Wall Street seems to have high hopes for the technology, and it will get a major marketing push from the company, but that doesn’t change a hard fact: Apple remains years behind rivals like Google in artificial intelligence.

That only became clearer last week when Google unveiled its latest Pixel devices. Though Apple Intelligence will do stuff like summarize your messages and make voice-memo transcripts, the latest Pixel phones will offer more gee-whiz features. That includes the ability to completely change the background in photos or absorb information from a picture, cross-reference it with data on your phone (like your calendar) and then take action on it. With Google Gemini, you can even hold full, humanlike conversations, and the company is working on a tool to create research reports on behalf of a user.

Apple and Google are not only miles apart in AI — they are in a completely different universe. Now, Google has some inherent advantages that Apple doesn’t, including its several-decade head start in crawling the web for info. Apple also has a greater focus on privacy, a policy that makes it harder to fully exploit AI.

But that doesn’t excuse how far behind Apple is in such a critical area. Let’s not forget: Apple debuted the Siri digital assistant in 2011. That was 13 years ago. The company has squandered that lead, and it will take a long time to make Apple Intelligence truly competitive.

If Apple can’t catch up quickly, Chief Executive Officer Tim Cook may need to rethink the company’s approach to AI. It also could put Apple AI chief John Giannandrea on the spot. Already, there has been speculation about how long he plans to stay at the iPhone maker — and the response to Apple Intelligence this fall will be a key test. It was interesting that software chief Craig Federighi took the lead unveiling Apple Intelligence during June’s Worldwide Developers Conference, rather than Giannandrea.

A decade after Apple Pay launches, the iPhone’s NFC chip will be opened up. These days, we take Apple’s tap-to-pay feature for granted. But it wasn’t until 2014 that the company brought the feature to its iPhone and, in the process, many hundreds of millions of people. The Apple Pay service relies on a near-field communication chip that the company has mostly kept to itself since then.

That’s finally changing. Apple is preparing to let outside parties use the NFC capabilities on the iPhone. It will open up the function to developers as part of iOS 18.1, which will launch about a decade after Apple Pay went live.

With the shift, third-party payment apps will be able to create their own Apple Pay competitors on the iPhone. This is a huge deal. Theoretically, Chase or American Express could launch their own tap-to-pay service for iPhone users. Now, there’s a a big catch: Developers will need to enter commercial agreements with Apple and pay them a fee to use the NFC chip. The company currently gets a small slice of every Apple Pay transaction, and opening NFC to third parties would otherwise lose it money.

There are two implications here. First, Apple continues to change its policies in the face of regulatory pressure. There’s a growing risk of huge fines or even worse (see the US Justice Department weighing the idea of breaking up Google). Second, Apple is still trying to make these changes in a way that doesn’t compromise its revenue. The company is only just emerging from a historic sales slump and can scarcely afford to lose any reliable moneymakers.

Another new Apple retail store in Southern California will open next month. As I wrote last year, the company has been preparing to open a location in the Del Amo mall of Torrance, a suburb near Los Angeles. I’m told preparations are full steam ahead for an opening the week of Sept. 16. Now, why is that interesting? Apple has been known to open stores around the time of new product launches, and that Friday — Sept. 20 — is a very plausible launch date for the iPhone 16. There are more stores coming this year as well, including a major new flagship location in Miami. You can see my road map from last year to get a fuller sense of Apple’s plans.

Q: What’s new in the iOS 18.1 beta software?Q: Are new AirPods still coming?Q: Why is Apple now exploring non-AR glasses?

Email me, ask on the Power On Discord, or you can always send me a tweet or DM @markgurman.

I’m on Signal at markgurman.01; Telegram at GurmanMark; or ProtonMail at [email protected].

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