Qualcomm has been downgraded to a sell rating due to the shrinking smartphone market.

Investing.com - Qualcomm is a fabless chip design company focused on mobile and smartphone processors. With weakening smartphone demand and increased competition threatening its core market, the company faces a tough year.

Seaport analysts downgraded the stock from Neutral to Sell, citing “the addressable market is shrinking significantly.”

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Rising memory prices may suppress smartphone demand, which could reduce shipments of devices using Qualcomm chips.

Global smartphone shipments are expected to decline by 10%-15% this year, as manufacturers either raise prices or cut configurations like memory, extending upgrade cycles and dampening demand.

Seaport states that this pressure could hit Qualcomm’s customers particularly hard, even as the overall market they serve shrinks, weakening the company’s position.

However, Apple may gain more market share in smartphones. While many Android phone manufacturers are reducing memory capacity or lowering prices, Apple has maintained its memory levels and pricing on its latest devices, giving it an advantage as memory costs rise.

Apple is also continuing efforts to remove Qualcomm components from its devices. Seaport says that as iPhone makers develop their own chips, Qualcomm could be largely excluded from Apple’s models starting next year.

The brokerage adds that Qualcomm’s strongest recent performance has come from the high-end Android segment, which is expected to face the greatest pressure this year.

Rising costs and increased competition from Apple could lead to discounted sales of Qualcomm chips and lower patent licensing rates.

If Chinese phone manufacturers prioritize cheaper models, demand for low-end Android devices may shift to competitors like MediaTek, potentially forcing Qualcomm to further cut prices.

As major smartphone manufacturers increasingly develop their own processors and modems, Qualcomm faces long-term risks. The top five phone suppliers have designed their own application processors, and companies including Samsung are developing internal modems.

While this shift is gradual, Seaport states that as Qualcomm’s addressable market continues to shrink, the risks to its core mobile market are rising.

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