Qualcomm Launches New Snapdragon Processors For The Mid-Range Mobile Market

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Last week, leading mobile chip maker, Qualcomm (NASDAQ:QCOM) introduced four new Snapdragon processors (Snapdragon 620, 618, 425 & 415) which bring high-end features to the midrange mobile devices. The new SoCs are aimed at enhancing user experience and connectivity for high-performance and high-volume mobile devices, offering features and capabilities that are generally considered high-end. (Read Press Release)

While the Snapdragon 620 and 618 processors redefine the 600 tier with significantly higher levels of performance, the Snapdragon 425 and 415 processors feature octa-core CPUs, a first for the 400 tier. The Snapdragon 415 chipset is sampling now and expected to be in commercial devices in first half of 2015. The Snapdragon 620, 618 and 425 processors are expected to be in commercial devices in the second half of the year. Qualcomm also extended its flagship brand, Snapdragon, to its discrete modem chipsets, and introduced LTE modem classes (including X8 and X5) across its latest system-on-chip and discrete modem products for mobile devices. The X8 LTE connectivity supports wideband download and uplink carrier aggregation for the first time in the 600 and 400 tiers.

The Snapdragon 410 originally brought LTE performance to this price tier and now Qualcomm is bringing next generation LTE performance to the mainstream. This puts competitive pressure on Samsung, MediaTek and Huawei to offer higher performance modems on the lower end of their mainstream offerings, driven by carrier pressure. [1] All of the SoC launched last week will be part of Qualcomm’s QRD (Qualcomm Reference Design) program, which will enable manufacturers to quickly and easily build devices with these chips. The QRD has already launched in 1,080 devices across 21 countries.

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Qualcomm Is The No.1 Player In The The Global Baseband & Application Processor Market

Qualcomm is currently the leader in the global cellular baseband chip market as well as the smartphone applications processor market, with a 64%  and 51% share in the two segments, respectively. According to research firm Strategy Alalytics, LTE basebands accounted for over 50% of Qualcomm’s total baseband shipments in Q3 2014 on account of new Snapdragon and Gobi chips and the ongoing China LTE momentum. However, on account of rising competition (from HiSilicon, Intel, MediaTek, Marvell, Samsung and others) Qualcomm’s LTE baseband volume share declined to less than 80% in Q3 2014, compared to 95% in Q3 2013. [2]

During its Q1 2015 earnings call, Qualcomm announced that its Snapdragon 810 processor was dropped from the upcoming design cycle of a large customer’s flagship device. It was later revealed that the customer was Samsumg, which decided to use its own Exynos 720 octa-core SoC rather than Qualcomm’s Snapdragon 810 processor in the Samsung Galaxy S6. Qualcomm is hopeful that it will not be affected much, as LG Electronics and the Chinese smartphone manufacturer Xiaomi have decided to use its chipsets for their respective devices.

Accounting for 12.5% of the market in 2014, Xiaomi was recently ranked the third largest smartphone manufacturer globally. It was also the largest smartphone maker in Q4 2014 in terms of device shipments, surpassing both Apple as well as Samsung. LG Electronics too fared well during 2014, selling 59.1 million units during the year. Most of the devices shipped by the company last year comprised the LG G3 smartphone, which is powered by Qualcomm’s chip. ((Qualcomm 810 Chipset News: Semiconductor Manufacturer Hopes to Make Up Samsung Loss With LG, Xiaomi, Breathe Cast, Fenruary 21, 2015))

Increasing Competition Can Limit Qualcomm’s Future Growth

Because of the growth potential that it offers, there is intense competition in the LTE baseband space. Though many players have already exited the market (Texas Instruments (NASDAQ:TXN) and Broadcom (NASDAQ:BRCM)) on account of the cut throat competition, Qualcomm faces increasing competition from the remaining players (MediaTek, Spreadtrum, Marvell, Intel, etc.) who are all set to bring commercial multi-mode LTE chip products to the market. Last year, Intel and Marvell received some significant LTE design-wins. [3] Intel has spent billions trying to build up its mobile chip business and has abundant funds to continue investing in the field. Intel’s first LTE solution, the 7160, is now available in the Samsung Galaxy Note 3 Neo and the Asus Fonepad 7, in addition to the previously announced Samsung Galaxy Tab 3. Nevertheless, Qualcomm’s Snapdragon chip family continues to gain strong foothold and is the preferred supplier for top-end smartphones by Samsung, Sony, Xiaomi, LG, Google, LG, Motorola, HTC, and Nokia.

Our price estimate of $72 for Qualcomm is in line with the current market price.

See our complete analysis for Qualcomm stock here

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Notes:
  1. Qualcomm Jumps the MWC  Gun, Launches New Midrange and Mainstream SoCs, Forbes, February 18, 2015 []
  2. Evolving LTE Baseband Landscape, Strategy Analytics, December 26, 2014 []
  3. Qualcomm Leads Mobile Baseband Chipset Market – Analyst Blog, Nasdaq, July 2, 2014 []