Qualcomm’s longevity with Apple comes at a price

Cristiano Amon is the CEO of Qualcomm. The company on Wednesday became the latest chipmaker to see its numbers hit by a rapidly weakening smartphone market.


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Victor J. Blue/Bloomberg News

Qualcomm QCOM -7.66%

will keep Apple‘s

AAPL -4.24%

lucrative iPhone business for a while yet – for better or for worse.

Qualcomm told investors during its fiscal fourth-quarter earnings call late Wednesday that it expects its modem chip to have the “vast majority” of Apple’s iPhone business for the next crop of devices expected to launch in fall 2023. It’s a shift from the company’s previously stated assumption of a 20% stake, but the news was not a huge surprise. An influential Apple supply chain analyst reported back in June that Apple’s efforts to develop its own modem had hit a snag and likely wouldn’t be ready for 2023 iPhones.

But Qualcomm still doesn’t expect to keep the company forever. The company said on Wednesday that it now expects “minimal contribution” from Apple to its chipset business for the fiscal year ending in September 2025.

It is wise for Qualcomm to be so honest. Apple’s business is significant; the company ships well over 200 million iPhone units each year even in weak cycles. But the world’s most valuable company is also strongly motivated to bring more of its chip design in-house. It has been designing its own application processors for the iPhone and iPad since the 2010 models, and its M-series CPU chips for the Mac have been a huge success. Apple’s Mac revenue has averaged 20% year-over-year growth over the past eight quarters since it launched the first devices with its internal processor. Average Mac revenue growth in the previous eight quarters was 8%.

Counting Apple out of business for the long term also furthers Qualcomm’s ongoing efforts to prove it has a life beyond smartphones. The company even held an analyst meeting in September that focused exclusively on its burgeoning auto business, which it expects to have $4 billion in revenue by fiscal 2026, compared with about $1.3 billion now.

But ringing down phones is no small matter for the company that largely invented the technology behind today’s mobile communications networks. And it remains the company’s most dominant business now – painfully. Qualcomm on Wednesday became the latest chipmaker to see its numbers hit by a rapidly weakening smartphone market. The company’s expected chipset revenue of about $8 billion for the December quarter was 23% below Wall Street’s forecast and would be the device’s first decline in three years.

That surprised investors who were already braced for a slowdown; Qualcomm’s stock fell nearly 8% on Thursday. Notably, Apple shares also took a hit, falling more than 4% as the outlook from Qualcomm and fellow wireless chipmaker Qorvo painted a weak picture for smartphone demand during the holiday season.

Despite their best efforts, Apple and Qualcomm are joined at the hip for a while yet.

Write to Dan Gallagher at dan.gallagher@wsj.com

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