Can Snapdragon Stop Qualcomm’s Chipset Pricing Declines?
Adoption of Qualcomm’s (NASDAQ:QCOM) Snapdragon chipset used in smartphones is increasing. Snapdragon is an application processor that gives mobile phones the computing power to run more sophisticated applications and software.
Snapdragon can help Qualcomm’s stock if it can slow declines of the company’s chipset prices. Qualcomm’s average chipset pricing has declined consistently in the past but increasing adoption of higher priced Snapdragon chipsets in smartphones could help Qualcomm limit pricing declines. Higher chipset pricing for Qualcomm could lead to a $1 (2%) upside to our $42 Trefis price estimate for Qualcomm’s stock.
Below we explain the reason for the rise in Snapdragon’s adoption rate, and how higher priced Snapdragon chips should lift Qualcomm’s average chipset pricing.
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Mobile Phone Chipsets 43% of Qualcomm’s Stock
We estimate that Qualcomm’s mobile phone chipset business constitutes about 43% of our Trefis price estimate for the company’s stock, making it the most important business for Qualcomm.
Snapdragon is Seeing an Increased Adoption Rate
Snapdragon competes with Nvidia’s (NASDAQ:NVDA) Tegra processor and Texas Instrument’s (NYSE:TXN) OMAP 4 chipset in the mobile phone processor market.
Snapdragon is one of the many chipsets that Qualcomm sells to mobile phones companies for handling voice / data communication to and from wireless devices, power management, Bluetooth connectivity and application processing.
Widely used in smartphones, Snapdragon processors consume less battery while providing processor speeds in excess of 1 GHz. These features have increased Snapdragon adoption among customers.
Some of the mobile phones that us Snapdragon are: Toshiba TG01, Acer neoTouch, Acer Liquid A1, HTC HD2, LG eXpo and Google Nexus One. In addition, the Snapdragon chipset will be used in soon-to-be-released Sony Ericsson Xperia and some phones operating the new Windows Phone 7 mobile operating system.
Snapdragon Chipsets are Priced High
An iSuppli report estimates that the Snapdragon chip used in the Nexus One phone costs around $30, which is higher than our estimate of Qualcomm’s average chipset pricing of $18.5.
We estimate that Qualcomm’s average chipset pricing will continue to decline from $18.5 in 2009 to $17.3 by the end of the Trefis forecast period.
If Qualcomm’s Snapdragon processor gains further adoption in the smartphone market, it could see stable or increased chipset pricing. This makes the success of smartphones using Snapdragon chips important for Qualcomm’s chipset business. If Qualcomm’s chipset pricing were to remain flat, due to higher Snapdragon adoption, it could lead to a $1 upside to our $42 Trefis price estimate for Qualcomm’s stock.
You can modify our forecast above to see how Qualcomm’s stock will be impacted if its average chipset pricing were to remain stable or rather increase instead of decline as we estimate.
For additional analysis and forecasts, here is our complete model for Qualcomm’s stock.