Riding on the immense popularity of its smartphones as well as Apple’s (NASDAQ:AAPL) iPhone, Samsung accounted for almost 60% of the total dual-core app processor shipments in 2011, followed by Qualcomm (NASDAQ:QCOM), Texas Instruments (NYSE:TXN) and Nvidia (NASDAQ:NVDA). Multi-core processors are gradually gaining traction in the market with 20% of total smartphone processors shipped in 2011 being dual-core, a study by Strategy Analytics revealed.  Since multi-core app processors are generally standalone chipsets, Qualcomm hasn’t been able to leverage its strength in integrated modem designs yet. However, with the recently launched dual-core Snapdragon chipsets with built-in LTE capabilities, Qualcomm looks most likely to eat into Samsung’s dual-core market share in the coming quarters.
We have a $68.40 price estimate for Qualcomm’s stock, about 10% ahead of the current market price.
Samsung exploits short-term shift in trend
Samsung’s dual-core success can be attributed to the fact that it manufactures most of its own smartphone chipsets. In addition, it also manufactures Apple’s dual-core A5 chipsets which feature in the iPad 2 as well as the iPhone 4S. With Samsung and Apple accounting for a lion’s share of the global smartphone sales, it is likely that Samsung will retain its top spot in multi-core app processor market for some time.
However, most of the multi-core shipments today are standalone processors, which means that they do not sport an integrated baseband processor. According to Strategy Analytics, standalone processors accounted for 90% of the total dual-cores shipped in 2011.
This is however only a short-term trend as integrated solutions are generally preferred by handset manufacturers for it enables optimum performance at low cost and high power efficiency. Single-core processors, where the technology is more mature, are more likely to carry a baseband processor on them. Almost 72% of the total single-core processors shipped were integrated with baseband applications processors in 2011.
Qualcomm to ride trend reversal with help from LTE
Dual-core processors, on the other hand, figure only in the high-end smartphones and account for only 20% of the app processor market. As these high-end smartphones start seeing mass adoption and dual-core architecture starts making its way to entry-level smartphones, emphasis will soon be back on power, cost and space optimization. That should tilt the scale back in favor of integrated chipsets, in line with the long-term market trend.
This is where Qualcomm, with its LTE-integrated dual-core Snapdragon, can make significant headway in the dual-core market. As LTE becomes more popular in the developed world, consumers will demand more power-efficient and sleeker handsets than the ones currently available. Samsung will then have to either come up with its own LTE-integrated chipset or rely on Qualcomm’s. Samsung already uses Qualcomm’s LTE solution in its Galaxy Note for AT&T.
Apple, meanwhile, is less likely to opt for Qualcomm’s integrated solution entirely since it designs its own app processor. Current designs of the iPhone and the iPad use separate app processors and baseband modems, and that is unlikely to change. Any market share gains on this front could therefore be unlikely, but Qualcomm shouldn’t be much worried since it has already secured the baseband slot in all of Apple’s iDevices.
Meanwhile, Nvidia’s push to create an integrated solution with its Icera acquisition could pose a few challenges. Nvidia was the first to market both its dual-core and quad-core solutions, and having an integrated baseband chipset could further bolster its chances of giving stiff competition to Qualcomm in the coming years.Notes:
- Dual-Core Processors Power nearly 20 Percent of Smartphones in 2011; Samsung Leads with 60 Percent Volume Share, Strategy Analytics, May 2nd, 2012 [↩]