Qualcomm’s Low-End Moves Aimed At Keeping Competition In Check

by Trefis Team
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Having seen its newly launched Snapdragon 800 chipset set new industry standards for CPU and graphics performance, Qualcomm (NASDAQ:QCOM) is now focusing on the low-end to stave off growing competition in the emerging markets. The semiconductor giant recently released details of six new dual-core and quad-core processors that will make their way into the low-end Snapdragon 200 family.

Unlike Qualcomm’s higher end chipsets that use its custom-built Krait design, the S200 processors are built on the standard Cortex design used by almost every other player in the industry. However, Qualcomm is using the higher A7 standard for the new chipsets as well as transitioning them to the 28nm manufacturing process to gain an upper hand over the competition. The current S200 chipsets use the older A5 design and are manufactured using a 45nm process technology. The low-end upgrades will help it better respond to rising emerging market competition from the likes of MediaTek, which recently launched a A7-based quad-core CPU for budget smartphones.

Qualcomm is positioning itself for China Mobile’s (NYSE:CHL) nascent, but potentially huge 3G market. The newly launched Snapdragon upgrades have been built with baseband support for all of China’s 3G networks, including China Mobile’s proprietary TD-SCDMA one. With emerging markets expected to see the highest growth rates in smartphone adoption in the coming years, Qualcomm is looking to extend its dominance at the high-end to the entry-level smartphone market as well. 

Our $70 price estimate for Qualcomm stock is about 15% ahead of the market price.

See our complete analysis for Qualcomm stock here


Growing Smartphone Demand In EMs

The emerging markets’ demand for smartphones is on the rise. China, for example, has already overtaken the U.S. as the biggest market for smartphones in 2012. Other emerging markets such as India and Brazil are also seeing strong growth and both are expected to break into the top five markets by 2016, according to a recent IDC report. As a result, the mobile app processor market is also seeing high growth rates. A recent report by Strategy Analytics found that the global market for smartphone application processors grew by a strong 60% in 2012 over the previous year. [1]

However, while Qualcomm continues to be a dominant player in the high-growth mobile chipset market, its market share is taking a hit due to growing competition from Broadcom and MediaTek, both of which have benefited from the popularity of low-end Android handsets in emerging markets. Qualcomm’s revenue share of the global mobile application processor market declined from 50% in 2011 to 43% last year. The loss in market share has been especially severe in the Android ecosystem where Qualcomm’s share declined from over 60% in early 2011 to about 35% in the later part of 2012.

With the new S200 upgrades, Qualcomm will seek to regain some of that lost market share. The entry-level quad-core chipsets will help Qualcomm address the growing demand for low-end phones that can offer higher levels of performance. However, with MediaTek having also entered the fray with quad-core chipsets of its own, it won’t be easy. Competition in the low-end market is getting fiercer by the day, but having a quad-core solution will help Qualcomm defend its market share better without resorting to price cuts.

China Mobile’s Untapped Potential

At the same time, Qualcomm will be looking to take advantage of China Mobile’s huge subscriber base and minuscule 3G penetration. China Mobile has the world’s largest subscriber base of over 700 million, which is about 65% of the Chinese wireless market. However, its 3G growth has been hampered by a largely incompatible home-grown TD-SCDMA network, which requires manufacturers to come up with specially crafted handsets for the carrier. Qualcomm is looking to eliminate this handicap by bringing out quad-core chipsets that support not only other commonly available 3G technologies but also TD-SCDMA. Further, with China Mobile looking to mitigate its 3G shortcomings with a 4G high-speed TD-LTE network, Qualcomm’s LTE expertise could come in very handy. One of Qualcomm’s recent launches include a dual-core MSM8930 chipset that has support for both TD-SCDMA and TD-LTE.

Addressing China Mobile’s 3G issues will help Qualcomm tap into a huge untapped market of future smartphone buyers. Due to 3G incompatibility issues, China Mobile has been able to convert a little over 17% of its total base to 3G. This compares poorly to the over 40% that competing carriers China Unicom and China Telecom have managed to convert. With a huge market of  600 million 2G subscribers on China Mobile’s network, Qualcomm’s 3G-integrated quad-core chipsets could help it ride the huge Chinese demand for 3G smartphones in the coming years.

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Notes:
  1. Smartphone Apps Processor Revenue Soared 60 Percent in 2012, Strategy Analytics, May 10th, 2013 []
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