By Adam Clark

The other shoe has finally dropped for Qualcomm with the long-awaited launch of Apple's first in-house cellular chip. While that blows a hole in Qualcomm's revenue, the chip company is moving quickly to respond.

Apple said last month it would include its own C1 cellular chip -- a critical component that connects smartphones to wireless carriers -- in its iPhone 16e model. It is the first move in a shift to custom modem chips that is expected to mean Apple will gradually stop paying billions annually to Qualcomm for such components.

Qualcomm had already said it was assuming no revenue from Apple in 2027 and beyond. However, it still needs to prove it can make up the gap.

One way it hopes to do that is by equipping Android smartphones with superior chips. Qualcomm presented its new X85 5G modem, which will be integrated into its future chips, at the Mobile World Congress technology conference in Barcelona on Monday. The company said it would give "connectivity leadership" to the premium Android smartphones that are likely to include the component.

If that sounds like a dig at Apple's new technology, Qualcomm's Chief Financial Officer Akash Palkhiwala insists it isn't.

"It's not just about one company, we've competed with a whole host of companies and we've consistently proved ourselves to be the leader," Palkhiwala told Barron's in an interview. "And so as we look forward, this new modem coming out, there's no doubt in our minds that it is going to be the best of the best."

While Apple said its C1 chip would be the most power-efficient modem yet in an iPhone, Qualcomm is saying that the X85 model will provide the fastest and most battery-saving 5G connection for Android devices. The modem has endorsements from partners such as Alphabet's Google.

Real-world comparisons will have to wait until devices featuring both components are available in the second half of this year.

The second part of Qualcomm's plan to replace and exceed the revenue lost from Apple is by diversifying beyond smartphones. Sales of phones generally have yet to receive the hoped-for boost from the addition of artificial-intelligence features.

Last year, Qualcomm said it wants to generate $22 billion in combined annual revenue from providing chips for PCs, vehicles, and the Internet of Things by 2029. That would be nearly triple the existing level.

The X85 modem technology is expected to gradually be incorporated across Qualcomm's portfolio of devices. "We have a tremendous growth opportunity there that's way larger than what the Apple revenue position is for us," Palkhiwala said.

One area that isn't officially in the growth plan yet but remains on the agenda is whether Qualcomm could move into producing chips for servers in data centers. That area has historically been dominated by Intel, though chip makers such as Nvidia are making gains as the spread of artificial intelligence creates demand for graphics processing units.

Last year, The Wall Street Journal reported that Qualcomm had approached Intel about a potential takeover, although there has been no subsequent update. Meanwhile, Sailesh Kottapalli, formerly lead architect for Intel's Xeon line of data center chips, recently announced he had joined Qualcomm.

"We've created a lot of technology at the edge, but it is relevant to what is happening in the data center and we will obviously continue to explore opportunities," Palkhiwala said.

Write to Adam Clark at adam.clark@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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March 03, 2025 12:06 ET (17:06 GMT)

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