Qualcomm's Premium Smartphone Chip Problem

Finance

NEWS / Finance 15 Views

Wi-fi chip big Qualcomm (NASDAQ: QCOM) is the main vendor of smartphone purposes processors and mobile baseband processors (these elements are sometimes -- although not all the time -- built-in right into a single chip). In response to analysis agency Technique Analytics, Qualcomm had a 42% income share of the smartphone purposes processor market within the first half of 2017. 

A big a part of Qualcomm's success within the smartphone purposes processor market has been a results of its technique of constructing a broad portfolio of processors with function units and price buildings tailor-made to all the things from $100 smartphones all the best way to $800-plus flagship telephones. 

One drawback that Qualcomm faces within the premium portion of the market -- part of the market that extremely values chip efficiency and options -- is that probably the most profitable high-end smartphone makers are stepping up their efforts to design their very own chips. 

A Qualcomm chip platfotrm.

Picture supply: Qualcomm.

The state of affairs

Apple (NASDAQ: AAPL), probably the most profitable vendor of high-end smartphones, has designed its personal purposes processors for a few years. Each iPhone delivery as we speak consists of an purposes processor that was developed internally by Apple. 

It is unlikely that Apple is ever going to modify away from utilizing internally designed processors to a third-party chip within the iPhone. 

Chinese language smartphone vendor Huawei, which is now the third-largest smartphone vendor by cargo quantity, additionally makes use of its personal purposes processors solely in its high-end smartphones.

Samsung (NASDAQOTH: SSNLF), which is the world's largest smartphone vendor by cargo quantity, makes use of internally designed processors (bought beneath the Exynos model) in addition to Qualcomm processors for its flagship Galaxy S and Galaxy Notice smartphone strains. 

Through the years, although, Samsung's Exynos processors have grow to be more and more aggressive with Qualcomm's greatest throughout the board. Actually, in some methods, Samsung's prime cellular processors have truly surpassed Qualcomm's. 

Take, for instance, Qualcomm's lately introduced Snapdragon 845 and Samsung's upcoming Exynos 9810. The Exynos 9810 helps 4K video seize at 120 frames per second, whereas the Snapdragon 845 helps 4K video seize at solely 60 frames per second. 

The Exynos 9810 might additionally embrace a substantially more powerful CPU subsystem than the one within the Snapdragon 845. 

And, lastly, the Exynos 9810 appears to have a extra highly effective (at the least on paper) built-in LTE modem, able to add speeds of 200 megabits per second, which is sort of a bit larger than the 150 megabits per second add speeds that the Snapdragon 845's built-in modem is able to. 

A drawing of a Samsung Exynos 9810 chip.

Picture supply: Samsung.

I would not be stunned if, over the long run, Samsung have been to thoroughly remove Qualcomm from its high-end Galaxy S and Notice smartphones. 

Contemplating that Samsung's Galaxy S and Notice smartphone strains ship in substantial volumes (not fairly flagship iPhone volumes, however they're in all probability, collectively, the very best quantity Android flagship units available on the market), such an eventual loss might actually harm Qualcomm's high-end smartphone chip enterprise. 

Qualcomm's course of motion

Finally, Qualcomm's long-term technique will have to be multifaceted. It has to proceed to take a position closely in high-end purposes processors in a bid to energy flagship smartphones from smaller smartphone makers that do not have the assets or the enterprise justification to construct their very own chips. 

Qualcomm can also be going to wish to double down in making an attempt to realize share in high-end (however not premium flagship), mid-range, and low-end smartphones. The processor common promoting worth in these segments is decrease than it's within the premium market, however the cargo volumes are probably larger. 

On prime of that, Qualcomm is working aggressively to seize further content material share in smartphones by constructing issues like RF entrance finish chips, fingerprint scanners, 3D sensing modules, and extra. Qualcomm will in all probability have to double down there and attempt to allow low-end, mid-range, and high-end smartphone makers to place out units that may compete with premium units. 

Qualcomm also needs to take pleasure in a income increase from the extra elements that it will be supplying to a big quantity of telephones. 

In different phrases, if Qualcomm is getting shut out of the premium smartphone market, it ought to attempt its greatest to disrupt it from the underside up. 

Along with these smartphone-related actions, Qualcomm is, in fact, making an attempt to diversify past the smartphone chip enterprise. That is why the corporate introduced its intent to purchase NXP Semiconductors, and that is why the corporate goes after new areas like Windows-based PCs and data centers

Qualcomm's place within the premium smartphone processor market is hardly enviable, and that is simply one in every of many causes that I am a fan of Qualcomm's merely accepting the takeover offer that it received late last year from Broadcom. Qualcomm's board rejected the supply, however Broadcom has approached Qualcomm buyers immediately.

Extra From The Motley Idiot

Ashraf Eassa owns shares of Qualcomm. The Motley Idiot owns shares of and recommends Apple. The Motley Idiot owns shares of Qualcomm and has the next choices: lengthy January 2020 $150 calls on Apple and brief January 2020 $155 calls on Apple. The Motley Idiot recommends NXP Semiconductors. The Motley Idiot has a disclosure policy.

Comments