Microsoft (NASDAQ:MSFT) recently announced its latest Windows Phone upgrade, the Windows Phone 8, and introduced the much awaited multi-core support in the new OS. In a bid to achieve deeper integration with Windows-powered tablets and PCs, Microsoft has decided to use the same core that powers its Windows 8 OS in the WP8 as well. Further, Microsoft also introduced its Surface line of tablets that will ship in two flavors – one running the stripped down Windows RT version and the other running the complete Windows 8 OS. Both versions of Windows 8 OS will also be made available to other manufacturers to build their own tablets/hybrid PCs.
We believe that with Microsoft launching an assault on the mobile space with these announcements, Qualcomm (NASDAQ:QCOM) stands to benefit due to its longstanding relationship with Microsoft for the Windows Phones as well as its dominance of the mobile processor market. Qualcomm also recently said that its Snapdragon S4 Pro line of processors will be targeted at ultra-thin laptops and tablets which makes us believe that many of the upcoming Windows RT devices will be powered by these processors. 
- Qualcomm Posts Moderate Revenue Gains In Q1’17 As Threats From Lawsuits Loom Large Over Licensing Business
- Qualcomm’s Licensing Business Could Be Undermined By The Rising Number of Lawsuits Against The Company
- What Can We Expect From Qualcomm’s Q1’17 Earnings?
- Qualcomm Dives Into The Connected Car Market With Its Drive Data Platform
- What Does The KFTC Ruling Imply For Qualcomm?
- How Can Higher Royalty Rates Add To Our Price Estimate For Qualcomm?
Qualcomm to benefit from Microsoft partnership
Microsoft has always used Qualcomm’s processors in their Windows Phones. With Windows Phone 8, it is likely to be no different. IDC expects Windows Phones market share to exceed iOS’s by 2016, so Qualcomm will stand to gain a lot if Windows Phone 8 gains prominence. 
Qualcomm will be able to take advantage of the multi-core support of the WP8 with its S4 line of dual-core and quad-core processors. The dual-core Krait S4s are being currently used in many popular smartphones such as the LTE-enabled HTC One X and the Samsung Galaxy S III. Since only Qualcomm’s processors come with an integrated LTE radio and are built on a power-saving 28nm architecture, it will be easier for manufacturers to build power efficient flagship Windows Phones with LTE support. Qualcomm’s quad-core S4 variant, although not released yet, has already been benchmarked and shows an impressive lead over other quad-core processors in the market. 
Although Windows Phone 8 provides Qualcomm a big opportunity to market its multi-core processors, an exacerbation of the supply shortage or 28nm chips may prevent Qualcomm from taking full advantage of the potential that WP8 presents. However, it is most likely a short-term supply constraint and Qualcomm expects the issue to be overcome before the end of the year.
Entry into PC market bodes well
Qualcomm has big plans for the PC market as well, as it looks to enter this huge market opportunity where its current share is nil. The company announced late-2011 that that it was closely working with Microsoft to bring out a ARM Snapdragon-powered Windows PC in 2012. (see Qualcomm to Enter PC Chipset Market Next Year) More recently at the Computex trade show, Qualcomm offered a hands-on experience of a Windows RT tablet running on its Snapdragon dual-core processor, so we know the company has actually made significant progress in its PC foray.  Qualcomm’s 28nm quad-core processor, which should be out soon, will help it further its interests in the hybrid PC market where performance is more important than in smartphones.
Microsoft’s ambitious mobile plans point to the growing trend of users starting to demand enhanced computing experience of their mobile devices while consuming lesser power than PCs. As users start wanting PCs and other devices to behave more like smartphones, mobile-chipset manufacturers like Qualcomm will have an edge going forward. Processors based on the ARM architecture such as Snapdragon are expected to make up more than 13% of the PC chip market by 2015, according to a report by IDC. 
Also, we know how deeply Windows is entrenched in the average PC user’s psychology with a dominant 76.5% of PC market share as per our estimates. Microsoft has used the same core used in the Windows 8 tablet /PC OS to build the WP8 so as to be able to leverage its huge presence in the PC market and integrate the user experience across all the Windows-powered devices. We expect this association with Microsoft to significantly help Qualcomm gain traction in the yet untouched PC market.Notes:
- Qualcomm Readies Snapdragon Line for Windows RT, PCMag, June 5th, 2012 [↩]
- Android Expected to Reach Its Peak This Year as Mobile Phone Shipments Slow, According to IDC, IDCPress Release, June 6th, 2012 [↩]
- Qualcomm’s Quad-Core S4 ‘Krait’ With Adreno 320 Benched, Beats Tegra3 And Exynos 4412, TrustedReveiews, June 15th, 2012 [↩]
- Qualcomm’s Snapdragon S4 Running Windows RT, AnandTech, June 5th, 2012 [↩]
- Worldwide PC Microprocessor Unit Shipments Up 7.4% Year Over Year in the First Quarter of 2011, IDC Press release, May 5th, 2011 [↩]