Potential 8% Hit to Qualcomm’s Stock from Intel-Infineon Deal

by Trefis Team
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Mobile chipset manufacturer Qualcomm (NASDAQ:QCOM) faces a new challenge from mighty Intel (NASDAQ:INTC), which recently expanded its mobile processor capacity by acquiring cellular baseband supplier Infineon for $1.4 billion in cash. Qualcomm also competes with Broadcom (NASDAQ:BRCM), Freescale, Marvell (NASDAQ:MRVL), MediaTek and Texas Instruments (NYSE:TXN).

Cellular basebands are chipsets that handle voice and data communication in wireless devices. Infineon’s customers include Apple (NASDAQ:AAPL) and other mobile phone manufacturers.

We don’t see Intel posing a significant threat to Qualcomm in the short term. However, there could be an 8% downside to our $48 stock price estimate for Qualcomm if Intel manages to snatch a significant share of the mobile chipset market by the end of the Trefis forecast period. Our analysis follows below.

Potential downside to Qualcomm’s stock

Qualcomm dominates the CDMA mobile phone chipset market with a market share of 69% as of last year. Due to increasing competition from MediaTek and Texas Instruments, we expect Qualcomm’s share to decline over the next few years, reaching 60% by the end of the Trefis forecast period.

You can drag the trend-line in the chart below to create your own CDMA share forecast for Qualcomm and see how it impacts the company’s stock price.

Our estimate excludes the long-term challenge posed by the Intel/Infineon combination. There could be a downside of 8% to the $48 Trefis price estimate for Qualcomm’s stock if its CDMA market share declines to 50% by 2016, instead of the 60% that we currently forecast.

Integrated chipsets and mobile phones

Qualcomm’s Snapdragon platform combines a cellular baseband with an application processor. Snapdragon customers include mobile phone companies like Nokia (NYSE:NOK), Motorola (NYSE:MOT), Samsung and LG, which favor integrated chipsets because they simplify the phone manufacturing process.

The Infineon acquisition allows Intel to integrate its Atom mobile application processor with Infineon’s cellular baseband. This will take time. As a result, we don’t think the Intel/Infineon combination poses an immediate threat to Qualcomm’s Snapdragon sales.

Eyes on Apple

Apple currently buys PC processors from Intel and iPhone chipsets from Infineon. After the Intel-Infineon deal, we think Apple may want to diversify its supplier base by shifting its mobile chipset business to another supplier. At least in the short term, this could be a net positive for Qualcomm.

You can see the complete $48 Trefis Price estimate for Qualcomm’s stock here.

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