Qualcomm's Days Of Supplying To Apple Appear To Be Numbered

Shares of QUALCOMM, Inc. QCOM lost nearly 7 percent Tuesday following reports that the company might see its modem technologies excluded from future Apple Inc. AAPL devices, including the iPhone and iPad.

Although Qualcomm said in a statement it is "committed to supporting Apple's new devices," it's days as being part of Apple's supply chain are limited, Charter Equity Research's Edward Snyder said in a research report.

Specifically, Qualcomm's relationship with Apple will likely end within the next two years, although this shouldn't come as a surprise. Back in 2014, Apple made it clear it has "other plans" for future modems and started using some of Intel Corporation INTC's modem products instead.

"Indeed, we believe the genesis of the Apple-Intel relationship centers on an LTE modem that could eventually be used by Apple in an internally developed SOC," Snyder said. "It needs such a part if it ever hopes to enter the mid-tier phone market without taking a beating in margins. In exchange for the small fortune spent developing the part, Apple would founder the SOC and all future thin-modems at Intel."

This shift in strategy doesn't "leave much room" for Qualcomm — never one of "Apple's favorite suppliers." Nevertheless, Apple won't be rushing to drop Qualcomm as this implies it will be risking everything on Intel's first CDMA-enabled baseband.

Finally, Intel is believed to have given Apple a working prototype 5G device and development system last December and Apple has been "running through its paces" since then, the analyst also wrote.

"So while the timing of Apple dumping Qualcomm is debatable, the fact that it's the plan of record probably isn't," Snyder concluded.

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