Apple's self-developed 5G chip is expected to debut as early as 2025, which could deal a heavy blow to Qualcomm?

According to the Zhitong Finance APP, analysts have pointed out that Apple's (AAPL.US) first self-developed 5G modem could pose the biggest risk to Qualcomm (QCOM.US).

Supply chain analyst Ming-Chi Kuo predicts that Apple's 5G chip shipments will reach 35 million to 40 million in 2025, with shipments in 2026 and 2027 expected to grow rapidly to 90 million to 110 million and 160 million to 180 million, respectively. Kuo previously revealed that Apple plans to launch two iPhone models equipped with self-developed 5G modems in 2025, including the fourth-generation iPhone SE and the brand-new ultra-thin iPhone 17.

Currently, all iPhones sold by Apple are equipped with Qualcomm modems for cellular connectivity, but with the launch of its self-developed 5G chips, Apple is expected to gradually reduce its reliance on Qualcomm. The supply agreement for 5G modems between Apple and Qualcomm has been extended to 2026, providing ample time for the development and deployment of Apple's own 5G modems. This strategic shift indicates further vertical integration by Apple in key technology areas and greater control over its future product lines.

Data shows that revenue from Apple accounts for about 20% of Qualcomm's total revenue. Analysts state, "From fiscal year 2026 to fiscal year 2028, Apple will gradually replace Qualcomm's 5G modems with its own products. If Apple can replace 15% each year, it will have an impact of over $1 billion on Qualcomm's annual revenue."

Analysts also added, "Apple's transition to self-developed 5G modems could significantly adjust Qualcomm's growth. In my view, Qualcomm's stock price has not fully reflected the potential risk of losing Apple as a customer." Analysts reiterated a "sell" rating on Qualcomm.

Another analyst noted that Apple's self-developed 5G modem is a major reason why Qualcomm's stock price is undervalued. Data shows that Qualcomm's current expected price-to-earnings ratio is about 15 times, while the industry median is about 25 times. Analysts indicated that revenue pressure from Apple is suppressing Qualcomm's valuation and downgraded Qualcomm's rating to "sell."

However, the analyst also believes that Qualcomm's diversification strategy is a highlight that the market has not fully recognized. The analyst stated, "Many investors seem to overlook that Qualcomm has other customers and other meaningful revenue growth channels, such as the automotive business."

Qualcomm's financial report released last week showed that for the fourth fiscal quarter of 2024, ending September 30, Qualcomm's revenue grew by 18.7% year-on-year to $10.24 billion, better than the market expectation of $9.96 billion; net profit increased by 96% year-on-year to $2.92 billion, exceeding the market expectation of $2.76 billion; adjusted earnings per share were $2.69, better than the market expectation of $2.56.

Qualcomm's revenue growth rate continued to improve, mainly benefiting from a comprehensive recovery in mobile, automotive, and IoT businesses. Mobile-related sales grew by 12% to $6.1 billion, slightly above the analysts' average expectation of $6 billion; automotive chip revenue increased by 68% to $899 million, while analysts expected $816 million; revenue from connected device chips was $1.68 billion, higher than the analysts' average expectation of $1.55 billion Looking ahead, Qualcomm expects revenue for the first quarter of fiscal year 2025 to be between $10.5 billion and $11.3 billion, better than the market expectation of $10.55 billion; it anticipates adjusted earnings per share to be between $2.89 and $3.05, also better than the market expectation of $2.81