What Can Qualcomm Achieve From Its New MuLTEfire Technology ?

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Leading mobile chipmaker Qualcomm (NASDAQ:QCOM) has unveiled MuLTEfire, a solution for running 4G networks in unlicensed spectrum that’s promised to feature “Wi-Fi-like deployment simplicity,” while still providing some of the range and mobility benefits associated with mobile networks. The solution is promoted as an alternative to the existing LTE-U (backed by many carriers), which also works in unlicensed spectrum but (unlike MuLTEfire) requires an anchor in licensed spectrum. Since it doesn’t need an anchor, MuLTEfire can be adopted by broadband ISPs, enterprises, venue owners, and others lacking licensed spectrum, provided enough of a hardware and chip ecosystem is built around it. (Read the company’s blog on the topic here.) Presumably, the service is intended to complement or augment Wi-Fi connectivity

Companies such as ZTE, Micromax, and others have launched the cheapest 4G enabled smartphones. The chipset, developed by US-based Qualcomm, helped these companies introduce 4G into the entry-level market. Qualcomm, eager to gain market share in the lower price bracket, was more than willing to help these brands make 4G affordable. Having said that, Qualcomm stands to benefit from MuLTEfire’s adoption via chip sales and royalties for related hardware. In February, the company rolled out small cell base station chipsets and a mobile device RF transceiver that support LTE-U.

China has begun a large trial rollout of LTE 4G across the country, expanding to 15 new cities to total 56 overall. As 4G expands, more consumers will demand smartphones with 4G capabilities, creating additional licensing revenue for Qualcomm. Qualcomm also has begun increasing their Snapdragon offerings and capabilities, especially at the lower end of their spectrum to target the expansion of lower-end Chinese smartphones producers like Xiaomi and Huawei. Xiaomi’s worldwide market share has increased from 2% to 5% over the past year. Introduction of better and advanced technology such as MuLTEfire will place Qualcomm in a favorable position with higher ASPs and more platform growth as demand for 4G smartphones rise.

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The company has developed this new technology to address the proliferation of mobile data consumption, which the company terms 1000x mobile data challenge. Solving the 1000x challenge will require multiple strategies. One key strategy is to make the best use of unlicensed spectrum. Qualcomm will now opportunistically use 5 GHz capacity in unlicensed spectrum to install small cell solutions to function something like publicly-accessible WiFi. Thus, Qualcomm will help small businesses run a small cell solution to generate a small revenue stream while helping to increase coverage much in the same way that small businesses have accessible WiFi today. We believe this development can represent an enormous growth opportunity for the company.

Our price estimate of $71 for Qualcomm is approximately at a premium of 5% with the current market price. For fiscal year 2015, we estimate the company to report revenue of $29 billion and net income of $8.1 billion. Also, our non-GAAP EPS estimate is $4.70 as compared to the market consensus of $4.79.

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