With the holiday season upon us, Qualcomm (NASDAQ:QCOM) seems set to once again reap the benefits of being the dominant chipset supplier in the fast-growing smartphone market. Along with smartphone giants Apple (NASDAQ:AAPL) and Samsung (PINK:SSNLF.PK), rivals HTC, LG, Nokia (NYSE:NOK) and Motorola have also timed their respective high-profile smartphone launches just ahead of the holiday season in a bid to outdo each other and make the most of this year-end shopping frenzy. While on one hand, we will see Android and iOS battle it out for a greater share of the burgeoning smartphone market, on the other hand, a number of Windows Phones will be looking to create a niche for themselves in an increasingly duopolistic market. A lot is at stake with the holiday season shaping up to be one of the most fiercely fought in recent times, but with a Snapdragon chipset at the core of most of these mobile devices, Qualcomm seems sure to benefit no matter the outcome.
Apart from the iPhone 5, which sports a Qualcomm LTE baseband, there is Samsung's Galaxy S III as well as many of the recent high-profile launches such as Nokia's Lumia series, the LG Nexus 4 and the HTC Droid DNA being powered by one of Qualcomm's Snapdragon app processors.
The number of Qualcomm-powered product launches announced recently not only points to a continuing strong demand for Qualcomm's chipsets, but also an improving production situation for the 28nm chipset end, which has been supply-constrained for most of the year. As the supply pressures ease by the end of the year and demand continues to remain strong, Qualcomm looks well-positioned with its broad portfolio of chipsets and diversified customer base to make the most of its leading position in the mobile chipset market going forward. We have a $69 price estimate for Qualcomm, about 10% ahead of the current market price.
A foot in every door
Qualcomm's chipsets currently find a place in two of the most dominant mobile ecosystems worldwide, Android and iOS. While Apple uses Qualcomm's baseband chipsets in both the iPhone and the iPad, many Android smartphones use Qualcomm's stand-alone as well as baseband-integrated chipsets. Android and iOS account for a combined 85% of the market but the near-duopoly could break in the coming years, with Microsoft making a reinvigorated assault on the mobile space with its Windows Phone 8 OS. But with Microsoft going with Qualcomm as the sole supplier of chipsets for WP8 handsets, Qualcomm has that base covered as well.
Also, with most of the high-end flagship smartphones supporting LTE, Qualcomm remains the LTE leader by quite a margin. Not only are its LTE baseband chipsets mature - being three generations old already, with a new 28nm technique that conserves space and power - they also come integrated with its dual-core Snapdragon app processors. This LTE leadership has served Qualcomm well and has thus far kept competitors from stealing market share. For example, Samsung's Galaxy S III and HTC's One X series had to be launched in the U.S. with a Snapdragon core, since rival chipsets did not play well with Qualcomm's LTE basebands. Competition is slowly catching up, however, with Nvidia recently announcing an LTE chipset that it plans to integrate into Tegra in 2013 and Samsung making its Exynos chipsets LTE-compatible as well.
Tablet focus needs improvement
Where Qualcomm faces the most headwinds currently is the tablet space, where Nvidia has been scoring quite a few wins lately, one of them being the much-touted Nexus 7. This has primarily been due to the quad-core Tegra 3 that Nvidia has been marketing well to tablet makers.
However, Qualcomm has already demoed its own quad-core S4 Pro chipsets and launched the first smartphones containing them. Dell's and Samsung's recently launched line of Windows RT tablets/hybrid PCs are also being powered by Qualcomm's chipsets, which allays concerns that Qualcomm might be having issues getting Windows drivers to work with Snapdragon. With Microsoft looking to make a big splash in the tablet space and Apple dominating with the iPad, Qualcomm seems to have the ingredients in place to profit from the burgeoning demand in this still nascent market as well. (see Qualcomm Fixes Its Gaze On Tablets With New Quad-Core S4 Pro)
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