VALUATION HIGHLIGHTS

1. Mobile Device Chipsets constitute 81% of the Trefis price estimate for Qualcomm's stock.
2. Mobile Device Royalties constitute 19% of the Trefis price estimate for Qualcomm's stock.

WHAT HAS CHANGED?

Q1 FY'24 Earnings

Qualcomm reported a better-than-expected set of Q1 FY'24 results. While revenue for the quarter stood at $9.94 billion, an increase of 5% year-over-year, earnings stood at $2.48 per share. Qualcomm's revenue from handsets rose 16% year-over-year to $6.69 billion while automotive sales jumped 31% to $598 million.

Note: Qualcomm's FY'23 ended on September 24, 2023. Q1 FY'24 ended on December 24, 2023

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Qualcomm's value that present opportunities for upside or downside to the current Trefis price estimate for Qualcomm:

Mobile Device Chipsets

• Qualcomm Mobile Device Chipset Revenue : We currently forecast Qualcomm's chipset pricing will grow from about $30 billion in 2023 to about $40 billion by 2029. However, if the metric grows to over $50 billion, there could be a 15% upside to our price estimate.

Mobile Device Royalties

• Royalty Rate: We currently forecast that Qualcomm's royalty revenues will grow from $5.3 billion in FY'23 to about $7 billion in FY'30, driven by its strong position in 5G as well as its move to work with Chinese manufacturers. However, if revenues remain flat over the long run, due to litigation or other pressures, our price estimate could decline by about 15%.

For additional details, select a driver above or select a division from the interactive Trefis split for Qualcomm at the top of the page.

BUSINESS SUMMARY

Qualcomm is a leading developer of Code Division Multiple Access (CDMA), a mobile device technology that facilitates communication between mobile devices and wireless towers.

Qualcomm makes money by selling chipsets for mobile devices, tablets, and femtocells. It sells chipsets to mobile device manufacturers such as Apple, Samsung, Nokia, and Motorola Mobility; and charges a royalty to mobile manufacturers on every device sold that incorporates its technology. The royalty charge is typically determined as a percentage of the selling price of the mobile device.

Qualcomm also licenses its CDMA technology to other chipset manufacturers that wish to sell CDMA-based chipsets to mobile manufacturers. In addition to licensing fees, the company also collects a royalty on every CDMA handset sold by the handset manufacturers. The company believes that competitive pricing and widespread availability of CDMA chipsets will encourage wider adoption of CDMA within mobile devices and will increase the size of its royalty base.

Qualcomm also licenses OFDMA (Orthogonal Frequency Division Multiple Access) protocols on which LTE/WiMax technology is based.

Our financial model is based on Qualcomm's fiscal year, which ends in September.

SOURCES OF VALUE

Qualcomm derives over 80% of its valuation from its mobile licensing and mobile chipset business.

KEY TRENDS

4G to 5G transition could open up opportunities

The wireless industry is beginning to transition from 4G to 5G, and Qualcomm appears to have an early lead in this space, launching its X55 5G modem in early 2019. While the transition to this technology could benefit Qualcomm's licensing business, the chipset operations could stand to gain more in the interim, as 5G devices generally require a tighter coupling between the various components, potentially enabling Qualcomm to sell more related components including power amplifiers, filters, RF transceivers, and antenna tuners to OEMs.

Pressure on Qualcomm Royalty Rates

Qualcomm charges royalties on each mobile device sold based on its technology, and one-time licensing fees from mobile chipset vendors to use its proprietary technology. Royalty rates have always been a debatable issue, and the tussle between mobile device vendors and Qualcomm has escalated, as is evident from an increasing number of lawsuits against Qualcomm.

Increasing Availability of Mobile Broadband and Mobile Applications

The increasing availability of mobile high-speed data access creates opportunities for Qualcomm to provide mobile device software applications that utilize its technology. The company also developed Firethorn, which is a banking application that can be used on mobile phones for secure banking transactions.