Qualcomm, Inc. (NASDAQ:QCOM) did not have the best 2017, and 2018 is not shaping up to be any better. QCOM stock has fallen more than 6.5% since Monday.
In the latest hit against the company, two brokerage firms reported that Apple Inc. (NASDAQ:AAPL) may ditch Qualcomm modems altogether in its 2018 iPhones, replacing them with components from Intel Corporation (NASDAQ:INTC).
QCOM stock was already down 3% on the news, and then tumbled even further as Broadcom Ltd (NASDAQ:AVGO) upped the pressure in its bid to buy Qualcomm.
A possible break from Apple and a possible buyout are not the only two issues endangering Qualcomm, however.
Report: Apple May Ditch Qualcomm iPhone Modems Altogether in 2018
On Monday, Reuters reported that two brokerage firms released research notes suggesting that Apple may drop Qualcomm altogether as a supplier of modems for its 2018 iPhones.
Instead of using Qualcomm modems, the company would instead turn to Intel, which began supplying modems to Apple on a limited basis starting with the iPhone 7.
The news sent QCOM stock down. Throw in an increased Broadcom bid to buy the company and an overall record-setting decline on the stock market, and Monday was a terrible day for Qualcomm.
The Royalty Fight With Apple
Qualcomm has been engaged in a lengthy battle with Apple over the pricing of Qualcomm modems used in iPhones (and some iPads). Apple accuses Qualcomm of overcharging for the component. Apple also alleges that Qualcomm charged it a second time by forcing Apple to also pay a royalty fee.
Apple’s business accounts for 20% of Qualcomm’s revenue. So the fight — which has seen lawsuits, counter-suits and withheld royalty payments — is proving costly to Qualcomm. And if Intel ends up taking the iPhone business from Qualcomm completely, that permanent loss of revenue will be bad news for QCOM stock.
Qualcomm is also fighting a legal battle on multiple continents against government regulators. The FTC and others have accused Qualcomm of anti-competitive practices.
Just two weeks ago, the European Union fined QCOM $1.2 billion. In “an illegal ploy to ensure only its chips were used in iPhones and iPads,” the company offered high rebates if Apple only bought Qualcomm’s chips for the iPhone.
EU Competition Commissioner Margrethe Vestager told reporters that, through this action, Qualcomm effectively shut down any sort of competition for “one of the biggest and most important customers in the market.”
Threat of Custom Chips
Qualcomm doesn’t just face trouble with its modem business. Its Snapdragon line of mobile CPUs is also being challenged.
More companies have begun to follow Apple’s model of custom designing their own mobile CPUs instead of using the off-the-shelf Snapdragon. Samsung uses its own Exynos CPUs in Galaxy smartphones outside of the North American market. And Alphabet Inc (NASDAQ:GOOGL) is making moves in that direction for its Pixel smartphones.
The more companies that move away from the Snapdragon, the worse the news gets for QCOM stock.
Complicating matters further for Qualcomm is the aggressive bid from Broadcom to buy the company.
Monday’s latest offer from Broadcom upped the offer from $70 per share to $82… and made QCOM stock drop even further.
Why? Fortune points out that as part of its latest offer, Broadcom included a 40-page presentation that details “how inept Qualcomm’s management has been” over the past five years.
The Bottom Line For QCOM Stock
The continuing fallout from regulatory investigations, the fight and possible break with Apple, the move toward custom smartphone CPUs and the Broadcom bid. Each of these represents a challenge for Qualcomm.
With all of them hitting at the same time, 2018 is going to be a pivotal year for the company, and one that could see QCOM stock added to our list of endangered tech stocks.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.