Qualcomm Stock Drops 7% as Apple Modem Shift Looms

Qualcomm, a leading American chip manufacturer, experienced a significant downturn as its stock price plummeted by over 7% during the pre-market trading session on Thursday. This abrupt decline followed a warning issued in Qualcomm's financial report, indicating that its modem business might lose Apple as a client. The company's smartphone chip business revenue for the third quarter, ending on June 29, also fell short of market expectations, with smartphone-related sales reported at 63.3 billion, lower than the analyst's estimate of 64.8 billion.

Adding to Qualcomm's challenges is the threat of semiconductor tariffs. The U.S. President has repeatedly threatened to impose taxes on imported semiconductors, which could disrupt the supply chain and negatively impact Qualcomm's smartphone revenue. This potential disruption adds another layer of uncertainty to Qualcomm's financial outlook.

In its third-quarter financial report, released on July 30, Qualcomm reported revenue of 103.7 billion, a 10% year-over-year increase, but below the average analyst estimate of 106.2 billion. The company's adjusted net income was 26.7 billion, a 25% increase from the previous year, with adjusted earnings per share at 2.77, surpassing the average analyst estimate of 2.72. The QCT division, which primarily handles chip business, reported third-quarter revenue of 89.93 billion, an 11% year-over-year increase. Within this division, smartphone chip business revenue was 63.28 billion, a 7% increase from the previous year but below the average analyst estimate of 64.8 billion. Automotive chip business revenue was 9.84 billion, a 21% increase, while IoT business revenue was 16.81 billion, a 24% increase.

Qualcomm anticipates fourth-quarter revenue, ending in September, to be between 103 billion and 111 billion, with the QCT division's revenue expected to be between 90 billion and 96 billion. The company projects fourth-quarter earnings per share to be between 2.75 and 2.95, compared to the market consensus of 2.82. However, the financial report also included a warning that Qualcomm's modem business may lose Apple as a client in the coming years, as Apple plans to transition to its own in-house designed modem chips for future devices. This news led to a significant drop in Qualcomm's stock price during the pre-market trading session on Thursday, with the lowest point reaching 147.36, a 7.36% decrease from the previous day's closing price. At the time of reporting, Qualcomm's stock price had fallen by more than 6%.

Historically, Qualcomm has earned over 50 billion annually from its partnership with Apple. In 2017, Apple filed a lawsuit against Qualcomm, alleging double charging, which led to a global legal battle. In 2019, the two companies reached a settlement, signing a six-year patent licensing agreement. Apple also acquired Intel's modem chip division for 10 billion, gaining over 17,000 patents and 2,200 employees, significantly enhancing its research and development capabilities. However, Apple's in-house chip development has progressed slower than anticipated. In February 2024, Qualcomm announced that Apple had extended its licensing agreement for Qualcomm's modem chips until March 2027, adding two more years to the original contract. In February 2025, Apple released the new iPhone 16e, featuring a lower price point and Apple's own in-house designed modem chip, the Apple C1. Reports suggest that the upcoming iPhone 17 Air, set to launch in September, will also feature the Apple C1 chip. This indicates that Apple is preparing to phase out Qualcomm's chips from its supply chain once the current contract expires.

In response to concerns, Qualcomm's CEO stated that the company is no longer dependent on Apple for its future growth and that the potential loss of Apple as a client would not significantly impact its operations. The company is focusing on expanding into non-smartphone markets, such as automotive and IoT, and deepening partnerships with other Android smartphone manufacturers to mitigate the risk of losing Apple as a client. Qualcomm reported that its non-Apple client chip business revenue grew by over 15% in the third quarter. The company's executive emphasized that the growth opportunities in the automotive and IoT sectors far outweigh the revenue from Apple.

In addition to the potential loss of Apple as a client, Qualcomm is also facing the threat of semiconductor tariffs. Analysts have expressed concern that the U.S. President's proposed tariffs on imported semiconductors could disrupt the supply chain and negatively impact Qualcomm's smartphone revenue. Although smartphones and semiconductor chips have been exempt from these tariffs so far, the U.S. President recently warned that tariffs on semiconductors could be announced soon, raising concerns about potential disruptions to the industry. On July 27, the U.S. Department of Commerce announced that the results of a national security investigation into semiconductor imports would be released within two weeks. This investigation, conducted under Section 232 of the 1962 Trade Expansion Act, aims to assess the impact of foreign semiconductors and their derivatives on U.S. national security. The U.S. President has previously suggested that tariffs on imported semiconductors could range from 25% to 100%. In April, he indicated that the upcoming national security trade investigation would focus on semiconductors and the entire electronics supply chain. On July 8, he reiterated that tariffs on pharmaceuticals, chips, and other bulk commodities would be announced. Analysts have warned that the actual tax rate could be higher than the current market expectation of 25%, potentially causing greater disruption to the industry. The potential tariffs could also impact AI chips and semiconductor equipment, with a significant impact on chip demand from the second half of 2025 to 2026. Additionally, ASML, a leading Dutch lithography machine manufacturer, has warned that the potential U.S. tariffs could hinder its growth plans for 2026. The company's CEO expressed concern that the current market environment, including geopolitical uncertainties and potential trade restrictions, poses significant challenges to its operations.