From Pioneering Mobile to Diversifying Into AI, Automotive, and Beyond.
Qualcomm has been a driving force in the mobile industry for over 35 years. Since its founding in 1985, the company has:
- Invested over $60 billion in research and development
- Earned over 140,000 patents for its technologies
- Supplied chips and modems for over 75% of smartphones globally
Qualcomm has been pivotal in allowing mobile phones to access data wirelessly. The company developed foundational CDMA technology enabling early cellular networks. Today, Qualcomm chipsets and modems provide the brains and connectivity behind most smartphones. The company also makes billions from its patented technologies featured in telecom standards worldwide.
Qualcomm Historical Impact on Mobile Technology
Qualcomm has also faced many legal battles over the years – such as an antitrust investigation by the FTC that lasted from 2017-2020, a $7 billion lawsuit from Apple spanning 2017-2019, and a $117 billion hostile takeover bid by Broadcom in 2018 that was blocked on national security grounds.
But despite these challenges occupying significant time and resources, Qualcomm continued to pioneer new generations of wireless technology, leading the transition from 3G and 4G network infrastructure to trailblazing 5G modems and chipsets now used by every major smartphone maker, including current iPhones. However, Apple plans to fully replace Qualcomm modems with its own custom-designed 5G silicon within the next two years.
The Critical Loss of Apple Business
While Apple utilizes Qualcomm’s 5G modems and chipsets in all current iPhone models, it represents a declining revenue stream for Qualcomm. At its peak in 2018, Apple accounted for one third of Qualcomm’s total revenues. Given volume reductions since then, Apple’s business makes up around 20% of sales today.
By designing its own custom 5G modem and RF chipset slated for use in 2024 iPhones, Apple aims to fully cut ties with Qualcomm’s smartphone components business within the next two years. Losing its highest volume customer andiPhone exclusivitity stands to wipe out up to $2.5 billion off Qualcomm’s top line.
Apple has also historically pushed prices down for Qualcomm components destined for iPhones compared to Android phones. Some analysts project that focusing on higher margin share in Android can aid profits near-term. But the long-run implications remain risky without filling the multi-billion dollar demand gap from Apple, especially if broader mobile market growth stagnates.
Qualcomm does still generate episodic licensing revenue from Apple for its standard-essential mobile patents. Given Apple’s complete internal component design though, even maintaining IP licensing royalties could face challenges without legal action.
While Apple vertically integrating risks value chain margin loss, Qualcomm expects savings redeployed to developing its auto, wearables and RF front-end businesses as next pillars. But with mobile still the predominant near term cash generator, losing Apple poses a stiff test at a precarious time.
Expanding Horizons – Qualcomm’s Growth Beyond Mobile
Qualcomm’s core smartphone business currently makes up over 50% of revenues and an even larger portion of profits. But the mobile market is projected to decline by 6% in 2024 – its worst downturn in over 10 years. High inflation and fears of a recession have softened consumer demand, reflected in Qualcomm’s recent Q3 earnings miss and decision to lay off 10% of employees.
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Losing Apple’s volumes would further intensify struggles posed by broader industry challenges. But management emphasizes that the majority of Qualcomm’s smartphone sales already come from providing advanced 5G modems and accompanying chipsets to Android manufacturers rather than from its supply arrangements with Apple.
The Future Beyond Mobile
Despite mobile industry uncertainty in the near term, CEO Cristiano Amon and Qualcomm see a promising technology horizon aligned with the company’s capabilities – especially in enabling on-device artificial intelligence. Qualcomm’s new partnerships with Microsoft and Meta illustrate initiatives underway to support offline generative models on phones and laptops without cloud connectivity.
We are also seeing the on device ai capabilities on the Newly Launched Samsung Galaxy s24 Ultra powered by Snapdragon chipset
By allowing more efficient inferences locally and addressing data privacy concerns, Qualcomm aims to differentiate itself from prevailing AI training paradigms reliant on Nvidia’s data center GPUs. The market for devices with accelerated AI capabilities could drive Qualcomm’s next phase of TAM and revenue growth.
Diversifying into Auto and Adjacent Markets.
Auto manufacturing has now emerged as Qualcomm’s fastest growing segment outside mobile, supplying ADAS, digital cockpit, and in-vehicle connectivity silicon to automakers planning over $3 billion in business with Qualcomm across their upcoming electric fleets. The company also maintains growth initiatives in adjacent categories like AR/VR, wearables, and networking infrastructure.
