The Nasdaq Composite (^IXIC -1.15%) has been on top of the world for much of 2020, but at least on Friday, it wasn't able to duplicate its strong performance. The much-watched benchmark was down about 1% as of noon EST.
Some market commentators speculated about the impact of stimulus negotiations in Washington and the potential for a possible compromise, while others concentrated on the attacks that many high-profile tech stocks have taken lately. However, squarely in the crosshairs today was Qualcomm (QCOM -2.53%), and the attack came from a somewhat unexpected source: Apple (AAPL -0.81%). The news was enough to send Skyworks Solutions (SWKS -0.55%) and some other Apple-reliant companies lower as well.
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Why Apple isn't helping Qualcomm keep the doctor away
Qualcomm sank nearly 8% at midday on Friday. The chipmaker has gotten a nice boost from prospects related to the 5G wireless upgrade cycle, but investors aren't pleased with a recent move from Apple that could challenge some of Qualcomm's most lucrative business prospects.
Apple has historically used Qualcomm as a supplier for some key components in its smartphones and other mobile devices, including cellular modem technology. The 5G-enabled iPhone 12 line uses 5G-capable parts from Qualcomm, and investors in the chipmaker had been hopeful that continued success for the latest iPhone would help boost sales indefinitely.
However, Apple is now looking to build its own cellular modems, vertically integrating that part of its iPhone production process. The iPhone maker hopes that investing in its own production and manufacturing capacity will help it stay on the cutting edge of technological innovation.
It's likely that Qualcomm will retain Apple's business for some time to come. The two companies have a licensing agreement that would probably govern any Apple product, as it would be difficult for Apple to establish that its own proprietary technology doesn't in any way rely on intellectual property licensed from Qualcomm.
Nevertheless, investors seem to be focusing on the fact that what has historically been an extremely lucrative line of business licensing technology to third parties might dry up for Qualcomm. If that happens, it would be a major blow to the bull case for the chipmaker.
Concerns across the industry
The news also affected stocks that typically rely on Apple for other types of products, parts, and components. For instance, Skyworks Solutions (SWKS -0.55%) was down 4%. Cirrus Logic (CRUS -0.65%) also struggled, falling nearly 5%.
Both companies have potential exposure to Apple if the tech giant decides to bring production of other key components in-house. Skyworks gets more than half its revenue from Apple, providing radio frequency chips for mobile devices like the iPhone. It's counting on the iPhone 12 to boost its revenue per phone, potentially tripling what it got from every sale of earlier 3G devices.
Similarly, Cirrus provides audio chips for iPhones, iPads, and Mac computers. Cirrus got nearly 80% of its revenue from its relationship with Apple, and past episodes during which the iPhone maker went with another provider of audio chips led to significant drawdowns for the stock.
Watch Apple
Apple is a colossus in tech, and what it does has a huge impact on tech stocks across the industry. Qualcomm might be just the beginning of a longer-term trend that sees Apple bring more production in-house -- and the domino effect could be substantial.
