Dissecting Qualcomm’s Loss In iPhone 7

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An early teardown of iPhone 7 and iPhone 7 plus by Chipworks confirms that the non-CDMA version of the device features an Intel baseband device. Separate teardowns of the iPhone 7 by iFixit have found Qualcomm baseband processors and most industry analysts believe that this latter company captured the CDMA-based versions of this new phone.  A lot of reports cite that Qualcomm’s loss to Intel in iPhone 7 will dent the dominance of Qualcomm in the baseband processor market. In this analysis, we investigate further as to how big the loss can be for Qualcomm.

Qualcomm Is Likely To Lose Some Market Share To Intel

As it is easy to swap phones on GSM networks, it is seen that GSM has much higher adoption than CDMA networks globally. Some reports cite that GSM market share is greater than 80% globally. For the purpose of calculations, let us assume that the CDMA versions of iPhone 7 will feature Qualcomm’s modem and the non-CDMA phones will feature Intel’s modem. We can also assume that the increase in iPhone shipments for Apple in the year ahead will be driven by strong demand for iPhone 7 and iPhone 7 plus. Considering the high market share of Apple in the global smartphone market, we can expect Qualcomm to lose some of its baseband processor market share to Intel in the near term. However, the company might have some respite in the U.S., where CDMA based phones comprise of almost half the market in the region.

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Qualcomm Still Likely To Garner Licensing Income From Apple

Though Qualcomm gains the majority of its revenues from the chipset segment, the licensing segment contributes more to the the company’s bottom-line. Qualcomm holds significant intellectual property applicable to products that implement any version of CDMA and OFDMA in mobile communications products. The company collects a one time licensing fee and royalties fee on the basis of selling price of the device sold from its licensees for using its technology.

According to a report, Qualcomm holds more than 25% of the essential patents for the UMTS (Universal Mobile Telecommunications System), which is a third generation mobile cellular system for networks based on the GSM standard. The company’s strong patent position in the UMTS is because it implemented the W-CDMA air interface in the UMTS. Further, the company has a strong 4G LTE patent portfolio too. Therefore, despite the fact that Qualcomm will lose some of its baseband processor orders in iPhone 7 to Intel, it is likely that the company will continue to collect royalty fee from Apple for using its technology. More importantly, the gain in licensing revenues can offset the decline in chipset revenues for Qualcomm.

See our complete analysis for QCOM here

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