Qualcomm makes money in 2 main ways:
i) from royalties paid by mobile phone makers (e.g. Nokia, Motorola, Samsung) to Qualcomm for use of the company’s CDMA mobile phone technology, and
ii) through sales of CDMA mobile phone chipsets to phone makers.
Mobile phone companies that need CDMA chipsets can purchase them from Qualcomm or from Qualcomm’s competitors. The company benefits either way since its royalty business collects money for each CDMA phone sold regardless of the brand of chipset used. We estimate that Mobile Phone Chipsets constitute 42% of the $45.71 per share Trefis price estimate for Qualcomm.
Infineon, a Qualcomm competitor within the chipset business, has had two major wins over the past two years. The first was taking away some of Samsung’s chipset business from Qualcomm and the second was becoming the chipset supplier for the iPhone 3G. As a result, Qualcomm’s market share within mobile phone chipsets has declined from 81% in 2005 to 66% today and we estimate that it will decline to 60% by the end of the forecast period.
The iPhone win is particularly important since it positions Infineon for more wins within the fast growing smartphone segment as mobile phone makers like Nokia, Motorola, HTC, Samsung and others roll out smartphone products. Within Qualcomm’s content on our platform you can see how a steeper decline in Qualcomm Chipset Market Share due to the growth of the smartphone segment and further wins by Infineon would impact Qualcomm’s stock.
