Can Qualcomm Regain Momentum By Investing In Drones?
In the past year, Qualcomm’s stock (NYSE:QCOM) has not performed well for investors, as its core business has been threatened by heightened competition from chip makers and pending litigation issues. However, the company has taken moves to diversify its sources of revenue. One such move is its entrance into aerial drone market and supplying modem integrated chips to action camera makers. With the launch of Snapdragon Flight, which is powered by a Snapdragon 801 mobile chipset and is designed to support 4k capable camera, Qualcomm marked its entrance into this market in September 2015.
However, in addressing this new market, Qualcomm’s success will be dependent upon how effectively it can compete with Ambarella — a key player in this segment. Amabrella makes video and image application processors for incumbent drone maker DJI Innovations of China (the market leader) and action camera maker GoPro. There has been speculation that GoPro might use Qualcomm’s Snapdragon Flight platform rather than Ambarella’s chipset to build its first ever camera drone devices — the Karma and GoPro Hero 5, which are set to be launched in 2016.
Qualcomm is advantageously positioned against Ambarella because its platform offers 4k camera support and an extended battery life at a reduced cost. Moreover, Qualcomm can achieve economies of scale in making Snapdragon Flight, which is an extension of its mainline Snapdragon processor family. GoPro’s fourth quarter revenue was negatively impacted by price reductions, resulting in 31% decline in revenues year over year. If Qualcomm is able to provide cost benefits to GoPro, it is likely that GoPro’s future cameras will be based on Qualcomm’s platform instead of Ambarella’s. This might help GoPro achieve higher product margins.
- With Smartphone Market Recovering, What To Expect From Qualcomm’s Q2 Results?
- Will Qualcomm Stock Return To Pre-Inflation Shock Highs Of $189?
- Will Qualcomm Stock Return To Pre-Inflation Shock Highs Of $190?
- With Expectations Low For Q4, Will Qualcomm Spring A Surprise?
- Will Qualcomm Stock Return To Pre-Inflation Shock Highs Of Over $180?
- Will Qualcomm Stock Recover To Highs Seen Prior To Inflation Shock?
About a third of Ambarella’s revenues comes from GoPro. If this revenue will be realized by Qualcomm going ahead, we show below by what percentage will Qualcomm’s revenue increase:
From the table above, we can sense that Qulacomm might not be able to achieve significant increase in revenues by getting GoPro on its side. It might have to explore other options such as acquiring Ambarella too. In fact, with a market cap of $1.6 billion, Ambarella can be an attractive acquisition target for Qualcomm.
Notes:
See More at Trefis | View Interactive Institutional Research (Powered by Trefis)