Advertisement

Blog

Qualcomm Rides the Mobile Wave

Last fall, wireless chip company Qualcomm quietly passed Intel in market capitalization. Today, the two companies are neck and neck — Intel’s market cap of $112 billion was slightly ahead of Qualcomm’s $110 billion as of mid-April. But the fact that Qualcomm is even close is astounding. Its annual revenue is only 40 percent of Intel’s.

Its soaring value is just one more sign of how mobile communications is overtaking the traditional computing market. According to IHS, semiconductor revenues from data processing are falling at about the same rate that wireless communications chip revenues are rising (7.8 percent). At that rate, it won’t be long before wireless communications revenue — which now makes up 23 percent of all semiconductor revenue — surpasses data processing’s 34-percent share.

Qualcomm’s revenues have almost doubled over the last three years, rising from $10.4 billion in fiscal 2009 to $19 billion in 2012. Its revenue was up 27 percent in 2012, and rose another 29 percent in the first quarter of this year. This past quarter, it also shipped a record number of chips — 182 million.

Qualcomm is now the third largest semiconductor supplier (in terms of revenue) in the world, behind Intel and Samsung, according to IHS. (Click here for an in-depth analysis of the company.)

We're (Almost) No. 1

Patents and a big push to spread its cellular technology have pushed  Qualcomm into a position where it threatens Intel's No. 1 chip position.

Patents and a big push to spread its cellular technology have pushed
Qualcomm into a position where it threatens Intel's No. 1 chip position.

Patent gold
A key to Qualcomm’s profitability is the fact that it holds key patents for 3G CDMA cellular technology. Royalties and license fees from those patents generate about 80 percent of the company’s profit today. Companies that use CDMA in their products — both chip vendors as well as handset manufacturers — pay Qualcomm $6 to $7 per phone, according to Brett Simpson, partner and co-founder of Arete Research, an independent equity research firm in London.

Now, the company has launched a big push to spread its cellular technology, and thus increase its royalty income, not to mention chip sales, beyond mobile phones. As wireless communications move more and more into the computing market, Qualcomm needs to make sure that OEMs adopt its technology. Although the company’s 4G patents have yet to be tested, analysts think the company has good technology and a strong patent position there as well.

“It won’t be long before every tablet and computer has LTE inside,” Simpson told me. “The challenge for Qualcomm is to figure out how to accelerate that process. How do they make LTE ubiquitous across other product categories outside of mobile phones?”

So far, the adoption of cellular in products outside of phones has been limited. The iPad offers 3G/4G, but keeps it an expensive, high-end option. That’s why only a quarter of all iPads ship with cellular today, Simpson notes. To try to encourage more OEMs to incorporate cellular connectivity in more products, Qualcomm is starting to market directly to consumers.

This year, it created the new position of Chief Marketing Officer and hired Anand Chandrasekher, who was responsible for Intel’s Centrino marketing campaign. That campaign was highly successful. A decade ago, before Intel’s big marketing push, few, if any, laptops had WiFi, Simpson says. “Today, 100 percent of notebooks have WiFi.”

At the beginning of this year, Qualcomm introduced its latest application processor, the Snapdragon 800, which, in addition to high-end smartphones, is also targeting consumer products like TVs and set-top boxes. Shortly thereafter, it launched an ad campaign featuring a cute little dragon designed to charm consumers.

Partnership push
Another approach the company may take is to forge innovative new agreements with telecom carriers to encourage OEMs to put cellular in more tablets and other mobile devices, Simpson speculates. Perhaps the carriers would subsidize the cost of the LTE chip so OEMs would offer it as a more affordable option. After all, “Verizon would benefit from every LTE-enabled device,” notes Simpson.

In addition, Qualcomm has a huge R&D budget — $3.9 billion last year, not to mention cash on hand of $27 million — to fund other efforts. For example, at CES, it announced it was teaming with AT&T to design an “Internet of Everything” development platform. The goal, of course, is to help OEMs design cellular into everything from automotive to smart meters to “future verticals and applications that haven't even been thought of yet,” Qualcomm said.

Time will tell whether Qualcomm will be successful in saturating the world with its technology. But I wouldn’t bet against them.

Related posts:

8 comments on “Qualcomm Rides the Mobile Wave

  1. Anand
    May 3, 2013

    Time will tell whether Qualcomm will be successful in saturating the world with its technology.  

    @Tam, thanks for the post. I agree with your opinion. But Qualcomm is hardly facing any stiff competition from other companies. TI closed its wireless unit, Intel is not having any major wireless product/patent. Moreover since Qualcomm has very good patent position in 4G area. So I wont be surprised if Qualcomm successfully saturates the world with its technology.

  2. Wale Bakare
    May 3, 2013

    I think Qualcomm would do fine in the world, it's moving fast ahead of rivals in mobile business. One good reason – one of the few firms pushing mobile development in Africa region forward by participating in different events such as mobile applications for finance and health sectors  http://mobilewestafrica.com/2013/

  3. elctrnx_lyf
    May 4, 2013

    With the rising number of wireless enabled devices with latest communication technologies such as LTE, quallcom will definitely become a top semiconductor company in next two years. All they need to do is to pull together more service providers to invest in the mobile netwrok infrastucture which would generate the revenue in future only after few years.

  4. _hm
    May 5, 2013

    What technology does Qualcomm has? I wish they can make Apple A7 processor and go even bigger.

     

  5. SP
    May 5, 2013

    Qualcomm really rose in very less time. Earlier they used to have more focus on video chips.

  6. Anand
    May 5, 2013

    What technology does Qualcomm has?

    @_hm, Qualcomm Incorporated is the world leader in 3G, 4G and next-generation wireless technologies. Much of the revenues they are earning is through the wireless patents they are currently holding. Qualcomm's Snapdragon processors is being used many smartphone OEM's like HTC, Nokia etc. 

  7. Lavender
    May 7, 2013

    In fact, Qualcomm's better-than-Intel performance can be seen as the result of the competition between PC and mobile devices. In the future, the integration of notebook and tablets has been a certain trend. PC can not surpass tablets. 

  8. t.alex
    May 7, 2013

    This is quite impressive given the fact that mobile devices have 2 main things: processors and wireless components. Of course there are other stuff but Qualcomm seems to have the right strategy to dominate the most parts.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.