Can Qualcomm See Sustainable Revenue Growth, Despite A One-Time Payment of $4.7 Billion By Apple?
Qualcomm’s (NASDAQ: QCOM) total revenue grew from $22.29 billion in 2017 to $24.27 billion in 2019. However, this was largely due to a one-time settlement payment made by Apple, to the tune of $4.7 billion, which drove up licensing revenue.
However, with the advent of 5G communication, and the renewed chipset deal with Apple, Qualcomm’s revenue is expected to rise to around $26.31 billion by 2021. Total revenue is expected to largely be driven by a $5.59 billion growth in the mobile chipset segment.
Takeaway
- Qualcomm’s mobile chipsets division, which manufactures embedded chipsets used in mobile phones, laptops, and tablets, is expected to contribute $16.14 billion to total revenue in 2020, making up 75% of Qualcomm’s $21.61 billion revenue estimate.
- The chipset division, is three times larger than the licensing revenue, which is expected to bring in $5.1 billion in 2020, making up 23% of total revenue.
- Qualcomm’s chipset business will provide $3.75 billion, which is 93% of the $4 billion in total revenue that the company is expected to add between 2017 and 2021.
- This strong revenue growth has been key to Qualcomm’s 40% price appreciation since December 2017, further helped by growing margins and an expansion in the PE multiple.
- In our interactive dashboard Qualcomm Revenue: How Does Qualcomm Make Money?, we discuss Qualcomm’s business model, followed by sections that review past performance and 2021 expectations for Qualcomm’s revenue drivers, including chipsets sold and price per chipset.
A look at Qualcomm’s segments and their contribution to total revenue
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(A) Revenue from mobile chipsets to grow by $5.59 billion over the next 2 years, to make up almost 77% of total revenue in 2021
- Mobile chipset revenue dropped from $16.48 billion in 2017 to $14.64 billion in 2019, on the back of a legal dispute with Apple, which drove down chipset sales.
- However, with the settlement and the new chipset deal with Apple, the number of chipsets sold should rise to around 772 million by 2021.
- Also, the new chipsets with 5G technology will be priced higher than their predecessors, and can help drive chipset revenue to $20.23 billion by 2021.
(B) Licensing revenue is expected to be around $5.5 billion in 2021, and make up 21% of the total revenue estimate
- Revenue from mobile chipset royalties dropped from $6.45 billion in 2017 to $5.16 billion in 2018.
- However, the settlement with Apple in 2019, brought in around $4.7 billion, driving licensing revenue to $9.44 billion.
- We expect revenue from this segment to come in at around $5.1 billion in 2020, and $5.49 billion in 2021.
(C) Revenue from other initiatives to bring in around $400 million over the next 2 years, to make up 2% of the total revenue estimate in 2021
- This division includes revenue from the Qualcomm Strategic Initiatives segment that makes strategic investments.
- It also includes revenues from non-reportable segments such as mobile health, data center, small cell and other wireless technology and service initiatives.
- We expect revenue from this segment to grow to around $589 billion by 2021.
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