With demand for mobile devices growing at impressive rates, the mobile semiconductor industry continues to be as competitive as ever. Not long after Nvidia (NASDAQ:NVDA) welcomed the new year with the announcement of its new quad-core Tegra 4, the successor to the popular Tegra 3 mobile processor, Qualcomm (NASDAQ:QCOM) followed up with two new quad-core additions to its Snapdragon portfolio.
The new Snapdragon 800 and 600 chipsets (the old S1-4 nomenclature has been replaced with 200-800) are built on two new versions of the Krait architecture, which Qualcomm introduced last year and has been very well adopted by the smartphone industry ever since. The newer Krait versions are also built on the same 28nm technology that drove the original Krait, and are hence highly power efficient despite having higher clock speeds and better performance.
While Qualcomm is facing increasing competition in the high-end of the smartphone market with Nvidia and Samsung (PINK:SSNLF) also bringing out quad-core chipsets of their own, its excellent baseband integration gives it an edge in the fast growing mobile market. Qualcomm’s new quad-core app processors are not only compatible with LTE (not a major distinction anymore since Nvidia and Samsung have also achieved this) but also come fully integrated with its 3rd generation LTE basebands on a single die. Nvidia has plans to bring out Snapdragons with integrated LTE as well but wont be doing so until later this year – giving Qualcomm a big advantage in the smartphone market.
Sustained high demand for mobile devices
The mobile device market is seeing strong demand as mobile data usage continues to witness explosive growth. The fact that Qualcomm registered a 28% uptick in sales for the full FY 2012 despite not meeting demand due to supply chain issues with the 28nm manufacturing process underscores the fundamentals of the market in which it operates.
Smartphone sales showed significant growth in 2011, and given the >42% year-over-year growth rates seen so far, 2012 is also likely to have been a strong year. Despite macroeconomic uncertainty, the consumer shift towards smartphones continues to be strong. iPhone and Android-based smartphones have registered incredibly high growth, and the launch of Windows Phone 8 smartphones should help push the market forward with more ecosystem choices. At the same time, tablet growth is picking up serious momentum. Gartner estimates that tablets grew by over 250% in 2011, and will continue to grow rapidly for the next few years to reach about 370 million unit sales by 2016. 
With the demand for mobile devices booming, Qualcomm seems well-placed with its chipsets finding a place in two of the dominant mobile ecosystems worldwide, Android and iOS. While Apple uses Qualcomm’s baseband chipsets in both the iPhone and the iPad, many Android smartphones use Qualcomm’s stand-alone as well as baseband-integrated chipsets. Android and iOS account for a combined 85% of the market but the near-duopoly could break in the coming years, with Microsoft making a reinvigorated assault on the mobile space with its WP8 OS. But with Microsoft going with Qualcomm as the sole supplier of chipsets for WP8 handsets, Qualcomm has that base covered as well. (see Qualcomm Readies Itself For Microsoft’s Mobile Foray)
28nm demand to remain high
Also, with almost all of the high-end flagship smartphones launching with LTE-support now, Qualcomm remains the LTE leader by quite a margin. Not only are its LTE baseband chipsets mature as they are three generations old already and built with the new 28nm technique that conserves space and power, but they also come integrated with its Snapdragon app processors. This LTE leadership has served Qualcomm well and has thus far kept competitors from stealing market share. For example, Samsung’s Galaxy S III and HTC’s One X series had to be launched in the U.S. with a Snapdragon core earlier last year since rival chipsets did not play well with Qualcomm’s LTE basebands.
As for the 28nm chipsets, we expect demand to remain high especially since there is a lack of such designs currently in the market that not only deliver excellent processing speeds but also conserve space and power. As Qualcomm’s suppliers ramp up output, the 28nm production process matures and the supply chain issues are mostly overcome this year, Qualcomm should be able to leverage its stronger supply ecosystem to grow chipset revenues even better than earlier anticipated. Since 28nm chipsets are costlier compared to the other chipsets built on different manufacturing processes, it will also help chipset ASPs rise in the coming quarters.
At the same time, emerging markets such as China are seeing an explosion in demand for 3G capable low-end smartphones. IDC expects China to increase its share of the global smartphone market by over 800 basis points to 26.5% by the end of 2012, leaving the U.S. behind at less than 18%. With a billion strong mobile subscriber base and carriers increasingly trying to transition their huge 2G base to 3G, China presents a huge opportunity for Qualcomm to not only gain from its chipset sales but also a steady stream of licensing revenues. (see Qualcomm Introduces Three New Entry-Level Chipsets To Target Emerging Markets)Notes:
- Gartner Says Worldwide Media Tablets Sales to Reach 119 Million Units in 2012, Gartner Press Release, April 10th, 2012 [↩]