Apple Bought the Cheapest Part, and Is Now Building ItThin moat

Qualcomm (QCOM) — moat facet

The largest customer had already negotiated itself into the least profitable version of the relationship before it began leaving it.

The most valuable customer Qualcomm ever had was also its least profitable one, and Qualcomm says so in the filing.

QCT handset revenue ($m)$22,570mFY2023$24,863mFY2024$27,793mFY2025$20,831m9m FY2025$18,934m9m FY2026Qualcomm Form 10-K FY2025 and Qualcomm Form 10-Q, Q3 fiscal 2026
A record handset year, then a 9% fall in the first nine months of the Apple modem transition.

The language is precise: Apple purchases Qualcomm's MDM — thin modem — products, which do not include the integrated application processor technology, and which have lower revenue and margin contributions than the combined modem and application processor products.1 Apple buys the piece it cannot yet make and builds everything around it itself. Every other large customer buys the platform.

The consequence, which Qualcomm also spells out, is that to the extent Apple devices using MDM products take share from customers who buy the full platform, revenues and margins fall — a competitor's success inside its own customer base.

Now the modem is going too. Apple bought Intel's modem business in 2019, shipped its own part in 2025, and handset revenue fell 20% year over year to $5.09 billion in the June 2026 quarter, with Apple-related revenue guided to decline roughly 50% between the September and December quarters.2

What remains after the chip revenue goes is the licence, which is owed on the iPhone whatever modem is inside it — and which took a court fight and a settlement to establish the last time it was contested.3

The number to watch is not handset revenue. It is the term of the Apple licence agreement, which is where the rest of this relationship lives.

Moat trajectory: Narrowing

Apple-related revenue is guided to fall roughly 50% between the September and December quarters, and there is no version of this that reverses.

The number that tests this moat
Reported
Handset chip revenue lost in a year, latest quarter
$1,242M (Q3 fiscal 2026 $5,086M against $6,328M)

Most of the fall is Apple's own modem arriving; the loss should widen through fiscal 2027 as the transition completes.

Source: QUALCOMM Incorporated Form 10-Q, quarter ended 28 June 2026 ↗
References
  1. ReportedThe language is precise: Apple purchases Qualcomm's MDM — thin modem — products, which do not include the integrated application processor technology, and which have lower revenue and margin contributions than the combined modem and application processor products.
    Qualcomm Incorporated, Form 10-K FY2025 — Item 1A, Risk Factors. Market-share concentration among a few companies, and the corresponding purchasing power of these companies, may result in lower prices for Qualcomm's products, which could adversely affect revenues and margins. Apple purchases Qualcomm's MDM (thin modem) products, which do not include its integrated application processor technology and which have lower revenue and margin contributions than the combined modem and application processor products; to the extent Apple devices using MDM products take share from customers using the combined products, revenues and margins would be adversely affected. The filing also carries risk factors on customers vertically integrating by developing their own integrated circuit products, on dependence on key personnel, and on the consequences of indebtedness. — FY2025 · publ. 2025-11-05 · source ↗
  2. ReportedApple bought Intel's modem business in 2019, shipped its own part in 2025, and handset revenue fell 20% year over year to $5.09 billion in the June 2026 quarter, with Apple-related revenue guided to decline roughly 50% between the September and December quarters.
    Coverage of Qualcomm's third-quarter fiscal 2026 results, July 2026 — revenue of $9.9 billion and non-GAAP earnings per share of $2.21, meeting the high end of revenue guidance and short of consensus on earnings. QCT handset revenue of $5.09 billion declined 20% year over year on industry-wide memory supply constraints, higher input costs affecting device pricing and demand, and inventory adjustments at major OEMs; automotive revenue of $1.59 billion rose 61% and IoT of $1.83 billion rose 9%. Management said a sharper-than-expected reduction in Apple modem-related sales contributed to a lighter fourth-quarter outlook, with Apple-related revenues expected to fall by approximately 50% between the September and December quarters, and doubled the fiscal 2029 non-handset revenue target to $40 billion. Fourth-quarter guidance was $9.7-10.5 billion of revenue and $2.05-2.25 of non-GAAP diluted EPS, both below consensus near $10.02 billion and $2.36. — Q3 FY2026 · publ. 2026-07-30 · source ↗
  3. ReportedWhat remains after the chip revenue goes is the licence, which is owed on the iPhone whatever modem is inside it — and which took a court fight and a settlement to establish the last time it was contested.
    Qualcomm Incorporated, Form 10-K FY2025 — Item 7, Management's Discussion and Analysis, and the reportable-segment note. QCT revenues $38,367M (2024 $33,196M, 2023 $30,382M) with EBT of $11,670M ($9,527M, $7,924M) at 30% of revenues (29%, 26%); QCT revenue streams handsets $27,793M ($24,863M, $22,570M), automotive $3,957M ($2,910M, $1,872M) and IoT $6,617M ($5,423M, $5,940M). QTL revenues $5,582M ($5,572M, $5,306M) against total costs and expenses of $1,539M ($1,545M, $1,678M), for EBT of $4,043M ($4,027M, $3,628M) — 72% of revenues in each of the three years. Reportable-segment revenues $43,949M, $38,786M and $35,716M against consolidated revenues of $44,284M, $38,962M and $35,820M. During the second quarter of fiscal 2025 Qualcomm executed final agreements for new long-term licensing arrangements. — FY2025 · publ. 2025-11-05 · source ↗
Sources
Generated September 23, 2026