Crucial Role Of Apple Inc. (AAPL) And Samsung In Qualcomm (QCOM)’s Job Cut

Apple Inc. (NASDAQ:AAPL)’s behavior isn’t leading to favorable results at Qualcomm, Inc. (NASDAQ:QCOM). In its latest earnings report, Qualcomm reported a steep decline in revenue and profit, forcing the company to say that it cannot sustain its current workforce any longer. As such, the company plans to lower its workforce by 15% and narrow spending this year by $1.4 billion.

Qualcomm’s woes appear to have their roots in the way Apple Inc. (NASDAQ:AAPL) is shifting its chips supply contracts. Samsung is also part of the problem, given that it has taken most of its chip contracts in-house. In essence, Qualcomm is losing sockets at key customers.

Qualcomm’s Third Quarter results

Qualcomm generated revenue of $5.8 billion in its third quarter 2015, indicating a decline of 14% year-over-year. Profits followed suit, falling 40% to come in at $1.2 billion.

With dwindling revenue fortunes, Qualcomm has no choice but to cut costs, and a layoff is the immediate action. The company will do away with 15% of its workers and also cut spending for this year by $1.4 billion, all in efforts to try and save money in an environment where getting new contracts has become a problem.

The source of the woes

There are a number of reasons Qualcomm is having a much harder time in business. One of the reasons is increased competition in the market. The other reason, which is more serious, is the loss of sockets from key customers.

The Samsung story: Samsung was one of the large buyers of Qualcomm’s chipsets, but the company decided to use its own chips in the latest line of Galaxy handsets. The move saw Qualcomm losing important Samsung sockets.

The Apple factor: Apple Inc. (NASDAQ:AAPL) has also reduced its exposure to Qualcomm, only buying the less profitable modem chips. For the main processor chips, which carry higher profit margins, Apple designs them by itself, cutting off Qualcomm.

Woes for Qualcomm do not just end with Apple Inc. (NASDAQ:AAPL) and Samsung taking most of its chip contracts in-house or shifting suppliers. The fact that Apple and Samsung continue to dominate the premium smartphone market, with 85% share, also means a small market for Qualcomm. The company is left with a tiny share of the chip market to appeal to now that Apple and Qualcomm are shifting their chips purchases.

All win be well, Qualcomm hopes

Despite the challenging business environment, Qualcomm believes that its current problems are only temporary and that it will bounce back strongly. The company is funneling more cash to R&D, especially focusing on areas like the Internet of Things, automotive and networking. Qualcomm intends to channel $4 billion to R&D projects.

Neha Gupta

Neha Gupta has been in the financial space for over six years now. Gupta earned her MBA degree from Symbiosis Centre of Distance Learning in 2009 and her passion for finance led her to pursue Chartered Financial Analyst (CFA) course. She has successfully completed Level II of her CFA. She is a veteran in article writing, which is depicted in her numerous pieces published on SeekingAlpha, Nextiphonenews, InsiderMonkey, MarketWatch, and Techinsider. Her crisp and eloquent writing finds its best place in Researchcows, where emphasis is given on developing rich content for various websites, products, business plans, trainings, and book writing.

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