While rivals such as Nvidia (NVDA) and Broadcom (BRCM) are looking to make deeper inroads into the LTE space, Qualcomm (QCOM) is trying to defend its early lead with the addition of new functionalities to its already widely deployed LTE chipsets.
The dominant mobile chipset maker introduced a new chipset solution, dubbed the RF360 Front End Solution, which it claims will help solve the problem of LTE fragmentation that handset makers including Apple (AAPL) face worldwide. As carriers around the world transition to the higher-speed 4G LTE standard, they are doing so on the back of about 40 different LTE bands that are based on a variety of spectrum frequencies. This has made it imperative that handset makers come up with different models of the same phone for different regions in order to support the multitude of LTE networks that have sprung up globally. With the RF360, Qualcomm hopes to solve the problem and emerge as the go-to vendor for all the handset manufacturers that do not want to grapple with the logistical complexities of selling multiple variants of the same phone globally.
Threat to Qualcomm From LTE Transition
Strong demand for smartphones is helping the cellular baseband market grow by impressive rates every year. Last year, the baseband market grew by a strong 18% year over year to reach about $18 billion. Qualcomm, which dominates the market with more than 50% market share, has benefited hugely from this trend. But the rapidly growing mobile device market has attracted the attention of a diverse set of semiconductor manufacturers who are all vying for a greater chunk of the high-growth, high-margin business in the coming years. This month alone, both Nvidia and Broadcom achieved significant milestones in their LTE plans. Nvidia announced its first LTE-integrated app processor, the Tegra 4i, and Broadcom introduced its first LTE baseband chip in the market.
The reason why LTE is important for chipset makers is that many carriers around the world are transitioning to this high-speed 4G technology. As a result, among the various technologies that are driving the baseband market currently, LTE is seeing the highest growth. The ongoing transition to 4G LTE in many developed markets, to be followed by the emerging markets such as China and India, could threaten Qualcomm's dominance in the coming years as rivals' LTE chipsets become more mature and see wider usage.
First Mover's Advantage With Qualcomm
However, the semiconductor giant has taken an early lead in the rapidly growing LTE baseband market. Of the 47 million LTE-capable chipsets that were shipped last year, Qualcomm accounted for nearly 86% of the market. This big lead is testament to the company’s superiority in 3G/4G connectivity solutions that helped it come to market first with LTE designs. As a result, while competitors are only now bringing their first LTE basebands to market, Qualcomm's chipsets are in their third-generation already. It is this maturity that the semiconductor giant brings to the table that caused Apple to shift its baseband supplier from Infineon (now acquired by Intel) to Qualcomm back in 2011 when it launched the iPhone 4S.
So while we believe that the LTE transition gives the new entrants their best chance at competing more effectively with the market leader, Qualcomm's smart anticipation of the LTE demand and its proactive moves to get its basebands LTE-compatible -- as well as integrate them on its Snapdragon app processors much before the rest of the market -- have helped it ride the initial demand, and should help it hold down the fort in the near term as well. The launch of the new RF360 solution further solidifies Qualcomm's stature in the market and its ability to lead with first-to-market innovative solutions.
Disclosure: No positions.