Kagan: How Qualcomm is dealing with growing China problem

Bloomberg has reported that Qualcomm has just suffered another significant stock decline. They have in fact been struggling for several different reasons over the past several years. The good news is, they remain one of the few leaders in the smartphone chip market, worldwide. The bad news is this stress does not show any signs of letting up. In fact, things are getting worse. That means things could be tough for them going forward.

So, why is Qualcomm under so much pressure? China is one significant reason. China is one of their critical worldwide markets and both the US and China governments seem to be increasing pressure on various US companies, including Apple, Qualcomm and Google.  

China is increasingly banning the Apple iPhone harming Qualcomm

One problem has to do with how the Apple iPhone is experiencing an increasing ban in China. In fact, they could be totally banned from government affiliated companies. And things continue to get worse as time goes by. 

So, as things get worse for Apple iPhone, the pressure gets turned up for Qualcomm. 

You see, Qualcomm is one of the largest part suppliers to iPhone with their modem chips, so this ban looks like it will increasingly get worse for these companies going forward.

What’s happening is these kinds of bans start small, but typically continue to get worse over time impacting all the companies in the space.

And as the temperature rises, it is bad news for suppliers like Qualcomm. 

China companies like Huawei represent two-thirds of Qualcomm revenues

Qualcomm has provided Huawei with 4G chips. Now we hear how Huawei is developing their own 5G chips. So, the pressure is only increasing.

As time moves forward, the U.S. ban means Chinese companies like Huawei and ZTE are forced to find new ways to meet their own needs. 

Since Huawei can’t do business with Qualcomm any longer, they are finding other ways to meet their needs with 5G chips and HarmonyOS, which replaces Google Android. 

U.S. blockage of Huawei is also harming U.S. companies like Qualcomm

Surprisingly, the U.S. blockage of companies like Huawei and ZTE is actually harming U.S. companies like Qualcomm, Google and Apple. 

One significant Qualcomm problem is China is a big fish in their pond. Bloomberg says China represents around two-thirds of their revenue.

That is why this is a big and growing problem for Qualcomm.  

Qualcomm investors watching China quandary closely

Qualcomm investors are watching how this problem is developing. It is thought this is why their stock price is taking such a hit.

Unfortunately, this China problem is not going away. In fact, it looks like it is only getting worse going forward.

That’s why Qualcomm needs to diversify and quickly. 

They are trying to do so into other areas like autonomous driving, healthcare and more, but so far, this is not making up for the loss created by the growing China problem. 

Companies and investors are not countries. Countries can wrestle with political strife. Companies and investors should not be hurt by these battles. Especially since we are not at war.

Yet, that is what is happening. 

Increasing pressures Qualcomm faces with growing Chinese problem

That being said, these are just some of the pressures Qualcomm is wrestling with today and in fact over the past few years.

They are a good company. They saw this writing on the wall a few years ago and are trying to move into other markets as quickly as possible.

They want to do this to make the China loss less painful. The problem is that kind of expansion and shift takes time. 

And time is a luxury Qualcomm does not have.

Hopefully, they will eventually be successful expanding their focus. Just don’t expect a quick resolution.