Qualcomm Braces for Apple’s Shift, Seeks Growth in Samsung and Beyond
Qualcomm Inc. QCOM is facing a potential loss of significant revenue from Apple Inc. AAPL, as the tech giant continues to invest in developing its own in-house modems. While the immediate impact is expected to be minimal, the potential for Apple to fully transition to in-house modems by the iPhone 17 could result in a substantial loss of revenue for Qualcomm. However, JPMorgan analyst Samik Chatterjee believes the company’s diversification efforts will lead to long-term success, fueled by opportunities with Samsung and other sectors like automotive and IoT.
Key Takeaways:
- Apple’s In-House Modem Development: Could significantly impact Qualcomm’s revenue, with potential losses estimated at 14% of revenue and 12% of EPS in the first year if Apple fully adopts its in-house modems for the iPhone 17.
- Qualcomm’s Opportunity with Samsung: Winning back market share with Samsung flagships could offset losses from Apple, resulting in a potential 5% increase in revenue and EPS by Fiscal Year 2025.
- Diversification into Automotive and IoT: Chatterjee views Qualcomm’s expansion beyond smartphones as a key driver of future growth, with these segments poised to eclipse the decline in revenue from Apple.
- Long-Term Outlook: Despite the potential loss of revenue from Apple, Qualcomm’s technological leadership in mobile chips and modems, coupled with its diversification efforts, positions the company for long-term growth, with a projected revenue growth rate of 6% from FY24 to FY27.
Qualcomm’s Opportunity with Samsung
While the potential loss of revenue from Apple presents near-term challenges, Chatterjee sees a significant opportunity for Qualcomm in the growing Samsung smartphone market. Samsung’s flagship phones, which are increasingly incorporating Qualcomm’s chipsets, could be a key source of growth for the company.
Chatterjee states, "Winning back share with Samsung flagships could be a revenue/EPS tailwind of ~5% each in FY25." This potential to increase business with Samsung is crucial for offsetting any losses stemming from Apple’s move towards in-house modems.
Automotive and IoT – New Frontiers for Qualcomm
Qualcomm’s commitment to expanding beyond the smartphone market is proving to be a strategic advantage. The company is actively pursuing opportunities in the rapidly growing automotive and Internet of Things (IoT) sectors.
Chatterjee is optimistic about these areas, as they are "positioned to eclipse the decline in revenue attributable to one of Qualcomm’s largest customers." He points to the company’s "technology leadership in mobile SOC (and modem) technology," positioning Qualcomm well for success in these emerging markets.
Qualcomm’s Long-Term Prospects
The analyst projects a "healthy, although modest relative to expectations, revenue CAGR of 6%" from Fiscal Year 2024 to 2027, driven by the growth in non-smartphone segments. Even with the anticipated decline in Apple-related revenue, which Chatterjee estimates could be around 87% by Fiscal Year 2027, the company’s diversification efforts are expected to more than compensate for the loss.
Chatterjee remains confident about Qualcomm’s future despite the near-term risks from Apple’s in-house modem development. The company’s strategic diversification into Samsung and other sectors like automotive and IoT provides a solid foundation for long-term growth and profitability. He concludes that Qualcomm’s "technology leadership in mobile SOC (and modem) technology" coupled with its diversification efforts, positions the company for long-term success.
