Asian Chip Manufacturers Team Up to Take on Qualcomm
It seems that Qualcomm’s (NASDAQ:QCOM) competition is growing by the day as new players have started to take the company on in the mobile chipset market. A few days back, in our article Hungry Broadcom Looks to Snatch Smarthphone Share from Qualcomm, we discussed that Broadcom is ramping up plans to increase its presence in the chipset market. Broadcom managed to break into the top five smartphone applications processor suppliers for the first time in the third quarter, and displaced Nvidia (NASDAQ:NVDA) from the fifth position. Broadcom achieved this by leveraging Google’s (NASDAQ:GOOG) Android platform’s surging presence in the smartphone market and grabbing design wins.
See our complete analysis of Qualcomm here
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Recently Japanese wireless carrier NTT DOCOMO announced that it plans to create a joint venture with a few Asian chip manufacturers including Samsung and Panasonic. [1] DOCOMO plans to invest 450 million Japanese Yen, about $5.8 million. into this venture.
Increasing competition a threat to Qualcomm
The DOCOMO joint venture means that another potent player is entering the mobile chipset market, thereby potentially eating away at Qualcomm’s market share. This will mean that the competitive threats to the company in emerging markets like China and India will become even more intense. Recently the company had to lower its chipset pricing in China in order to compete with low-cost vendors such as MediaTek (see Qualcomm Lowers Price on Chips to Penetrate China, Emerging Markets).
Although Qualcomm made this move to capture the growth opportunity in emerging markets, where telecom operators have started to adopt 3G technology, its average chipset pricing and margins are still likely to take a hit.
Our $62.25 price estimate for Qualcomm’s stock is about 15% above the current market price.
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Notes:- DOCOMO and Five Companies to Set Up Communication Platform Joint Venture Company, Press Release, December 27th, 2011 [↩]