Hungry Broadcom Looks to Snatch Smarthphone Share from Qualcomm

Qualcomm (NASDAQ:QCOM), the market leader in mobile chipsets, could see a formidable competitor emerge in Broadcom (NASDAQ:BRCM), which is ramping up plans to increase its presence in the smartphone market next year. ^[1] Broadcom has so far been a dominant player in the broadband and in-home chips market. Design wins for smartphones running Google’s (NASDAQ:GOOG) Android platform has helped the company grab a toe-hold in the new market, and it plans to capitalize this opportunity to grab more market share next year.

See our complete analysis for Qualcomm stock here

The year 2011 has been a defining year for Broadcom’s mobile chipsets as the company managed to break into the top five smartphone applications processor suppliers for the first time in the third quarter, according to research firm Strategy Analytics. Broadcom displaced Nvidia from the fifth position in terms of unit sales. ^[2] Qualcomm continued its reign at the top, and we expect it to continue to do so for a long time, given its strong product portfolio and diversification across mobile OS platforms.

We maintain our price estimate for Qualcomm stock at $62, which is about 18% above market price.

Broadcom Relies on Android for Now

Broadcom’s fortunes however hinge on its Android business at the moment after its initial partnership with Nokia on Symbian failed to generate sales. Nokia has since moved on to Windows Phone for its handsets that are currently only supported by Qualcomm. Qualcomm controls almost half of the smartphone chip market whereas Broadcom is just starting out, and in this scenario we believe Qualcomm has the most to lose as Broadcom and others looks to increase their presence in the smartphone market.

But, for that to happen, Broadcom will have to start securing some high-end smartphone design wins. Its application processors have thus far found traction only in the lower-end phones. Qualcomm’s popularity among the full range of smartphones and relationship with a variety of mobile phone vendors helps it stand out among competition, and it will be a few years before Broadcom can hope to replicate Qualcomm’s reach.

However, we think Qualcomm may see greater competition from Broadcom if it leverages its recent acquisition of Beceem to come up with a 4G LTE-enabled modem integrated with its application processor before Qualcomm does. That and improving the performance of its mobile processors will help it score some high-end design wins next year. Considering Broadcom’s dominance in the wireless broadband market and its integration capabilities, we think it may have a chance to emerge as a potential competitor to Qualcomm in the long term.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Broadcom CEO Sees Closing Cellular Chip Gap With Qualcomm, WSJ, December 15th, 2011 [↩]
2. Broadcom Grabs Fifth Spot from NVIDIA, Strategy Analytics, December 6th, 2011 [↩]