Apple's (AAPL) first self-developed 5G modem could pose a significant risk to Qualcomm (QCOM, Financial), according to analysts. Supply chain analyst Ming-Chi Kuo predicts Apple will ship 35 to 40 million 5G chips in 2025, with rapid growth to 90 million to 110 million in 2026 and 160 million to 180 million in 2027. Apple plans to launch two iPhones with its own 5G modems in 2025, including the iPhone SE 4 and a new ultra-thin iPhone 17. Currently, all iPhones use Qualcomm's modems for cellular connectivity, but with the new 5G chips, Apple aims to reduce its dependency on Qualcomm.
The supply agreement between Apple and Qualcomm for 5G modems extends to 2026, allowing Apple ample time for the development and deployment of its products. This move signifies Apple's further vertical integration in key technology sectors and increased control over future product lines. Apple's revenue accounts for approximately 20% of Qualcomm's total income. Analysts suggest that if Apple replaces 15% of Qualcomm's 5G modems annually from 2026 to 2028, Qualcomm could lose over $1 billion in annual revenue. The potential loss of Apple as a client has not yet been fully reflected in Qualcomm's stock price, leading to a "sell" rating from analysts.
Another analyst believes that Apple's 5G modems are a primary reason Qualcomm's stock is undervalued, with its current P/E ratio at about 15 compared to the industry's median of 25. Although Apple's revenue pressure is affecting Qualcomm's valuation, the analyst notes Qualcomm's diversification, particularly in its automotive business, remains a positive aspect that investors may be overlooking.
Qualcomm's recent financial report showed significant growth. In the fiscal fourth quarter, revenue rose 18.7% year-over-year to $10.24 billion, surpassing expectations of $9.96 billion. Net income increased 96% to $2.92 billion, and adjusted EPS was $2.69, better than the expected $2.56. Growth was driven by improvements in mobile, automotive, and IoT sectors. Mobile sales increased 12% to $6.1 billion, automotive chips grew 68% to $899 million, and IoT chips brought in $1.68 billion, exceeding expectations.
Looking ahead, Qualcomm forecasts fiscal Q1 2025 revenue between $10.5 billion to $11.3 billion, above market expectations of $10.55 billion, with adjusted EPS projected at $2.89 to $3.05, higher than the expected $2.81.
