July 6 (Reuters) - Broadcom ( AVGO ) said on Monday it will expand its partnership with Apple ( AAPL ) through 2031 to develop and supply custom chips, cementing the chipmaker's role as a critical supplier to the iPhone maker.

The deal eases investor fears that Apple ( AAPL ) would replace Broadcom's ( AVGO ) components with its own chips in the near term and shows that despite efforts to design its own modems and processors, Apple ( AAPL ) needs Broadcom ( AVGO ) for complex custom silicon.

The chipmaker, whose shares jumped more than 3%, has been supplying Apple ( AAPL ) key components such as radio frequency chips used in iPhones for connecting to cellular networks, Wi-Fi and Bluetooth connectivity chips and other networking semiconductors. Apple's ( AAPL ) shares rose more than 1%.

A WIN-WIN PLAN

Apple ( AAPL ) accounts for about 20% of Broadcom's ( AVGO ) annual revenue, according to analysts. "For Apple ( AAPL ), locking in Broadcom ( AVGO ) through 2031 buys supply-chain certainty at a moment of chip scarcity, and spares Apple ( AAPL ) from having to in-source key iPhone components," Emarketer analyst Jacob Bourne said.

"For Broadcom ( AVGO ), it provides reassurance given that Apple ( AAPL ) has spent years trying to build these chips itself."

The two companies had in 2023 entered a multibillion-dollar agreement for Broadcom ( AVGO ) to develop and manufacture 5G radio frequency components.

The boom in inference - the process by which models respond to user queries - has made custom chips crucial, increasing the orders for advanced processors and intensifying competition.

Apple ( AAPL ) relies on Taiwan's TSMC, the world's largest contract chipmaker, for its in-house processors, including the M-series chips that power its Mac computers and the A-series chips in iPhones.

TSMC, however, has been stretched thin by surging demand from AI chipmakers such as Nvidia ( NVDA ), which Apple ( AAPL ) CEO Tim Cook said in April had held back iPhone sales.

Apple ( AAPL ) is also in discussions with Intel ( INTC ) to manufacture some chips in the U.S., though analysts have said volume production is unlikely before late 2027.

The company was forced to raise prices of its MacBooks and iPads in June as memory chip costs surged as much as 98% in early 2026, driven by AI datacenter demand.

(Reporting by Akash Sriram and Anhata Rooprai in Bengaluru; Editing by Shinjini Ganguli and Arun Koyyur)