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Why is the exposure to Qualcomm the talk of town right now? Let's see.
Is Qualcomm About To Lose A Key Customer?
Apple has leapt toward self-reliance with the introduction of its first custom-designed modem chip. Revealed on Feb. 19, this chip will power the newly launched iPhone 16e, a $599 model in Apple's latest smartphone lineup. This move could signal a major shift in Apple's relationship with Qualcomm, its long-time modem supplier.
For years, Apple has depended on Qualcomm for modem chips that connect iPhones to wireless networks. Qualcomm also supplies modems for Android smartphones and Windows laptops, making it a dominant player in the industry. However, Apple has been working on reducing its dependence on third-party suppliers and took a major leap with the development of the C1 subsystem-a collection of components that now includes Apple's in-house modem chip.
Creating a modem chip isn't easy. It must be compatible with networks worldwide and work seamlessly with hundreds of carriers. Only a handful of companies, including Samsung, MediaTek, and Huawei, have successfully developed their own modem chips.
Apple itself struggled in the past to move away from Qualcomm. It even had a legal battle with the chip giant before settling in 2019 and signing new supply agreements. But now, Apple believes it has cracked the code with its advanced C1 chip, which it plans to refine and expand across its devices in the coming years.
What's Next For Qualcomm?
Qualcomm faces a significant challenge as Apple moves away from its modem business. The transition could result in a revenue hit to Qualcomm's annual revenue. Management at Qualcomm has already projected that it will supply only 20% of Apple's modem chips by 2026, according to a September 2023 Wall Street Journal report.
Qualcomm has been preparing for Apple's departure for years, but it still relies on the iPhone maker for over 10% of its total revenue, according to its annual filing for 2024.
With Apple gradually shifting to its own chips, Qualcomm could eventually lose one of its biggest customers. While Apple hasn't given a timeline for a complete transition, this development raises concerns for Qualcomm's future revenue from iPhone modems.
On the flip side, it is still too early to say whether Apple's modem chip is successful. Let's say if the phone does not perform as well as iPhones with Qualcomm chips, it will bolster investors' faith in Qualcomm. For now, investors can only keep an eye on the developments and tap ETFs carrying semiconductor companies including Qualcomm.
