Qualcomm Retains Lion’s Share Of LTE Baseband Market; Further Gains Expected In 2016

According to ABI Research, leading chipset maker Qualcomm (NYSE:QCOM) remained a leader in the LTE baseband chipsets in 2015. The company held a massive 65% of the LTE baseband chipset market in the year. LTE (Long Term Evolution), commonly marketed as 4G LTE, is one of the latest standards for wireless communication of high speed data for mobile phones and data terminals. The market for LTE is expected to grow at a CAGR of 78.6% through 2019, and Qualcomm will be a clear beneficiary of this trend as it has been successful in retaining its position in the LTE baseband chipset market. However, it must be noted that the company is being challenged by some of its own customers in the LTE market. A number have increased their focus on building an in-house SoC (System-On-Chip) to differentiate themselves in the increasing competition.

Our price estimate of $60 for Qualcomm is around 18% above the current market price.

See our complete analysis for Qualcomm stock here

Snapdragon 820 Can Further Boost Market Share In 2016

Qualcomm suffered a major setback in 2015 when  performance issues with its premium chipset,  Snapdragon 810, induced  one of its largest customers, Samsung, to use its own SOC.  Qualcomm’s follow-on Snapdragon 820 should give the company a chacne to clear the decks and regain share.   Qualcomm is said to already have significant design wins for the Snapdragon 820 chipset and will likely see more gains from its flagship chipset in the second half of FY 2016, when it enters mass production and commercialization.

Moreover, Samsung has officially confirmed that its latest premium handset — Galaxy S7 — will feature Qualcomm’s Snapdragon 820. ^[1] Given that Samsung has the largest market share in smartphones, Qualcomm will clearly benefit from the roll out of S7. Furthermore, Qualcomm confirmed in a tweet that the upcoming flagship LG phone — G5 — will sport Snapdragon 820 processor. Given the high selling price of these premium smartphones, it could be an even bigger win, as the company charges royalties as a percentage of device sales price.

Furthermore, the company stands a chance to improve the average selling price and the number of  chipsets sold by successfully commercializing Snapdragon 820 chipset. It must be noted that, in 2015, the number of MSM chipsets sold by Qualcomm and the average selling price at which they were sold dropped by 1.5% and 15% respectively, causing a 17% drop in the QCT revenues for the company.

Customers Posing A Bigger Challenge To Qualcomm In LTE Market Space

Interestingly, Qualcomm is being challenged by its own customers in the LTE baseband chipset market than its common rivals such as MediaTek or Spreadtrum. It must be noted that MediaTek held only 3.5% of the market share in LTE baseband in Q4 2015, unlike Qualcomm’s clients – Samsung and Huawei, who had 21% and 14% market share, respectively, in the same period.

Historically, major handset vendors have offered certain phones with their own SOC and others with a Qualcomm device.  The company thus will continue to face may face further competition from its own customers.  Samsung, a major customer of Qualcomm, has has designed its in-house Exynos SoC. As we noted, Qualcomm lost significant market to Samsung in 2015, as the latter decided to use Exynos chipset in Galaxy S6 than Qualcomm’s Snapdragon 810. Furthermore, Apple has always used its own SOC, while Xiaomi is planning to build its own SOC as well.

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1. Qualcomm Back Inside Samsung’s Flagship Phones, Sandiegotribune, Feb 2016 [↩]