Qualcomm (NASDAQ:QCOM) makes money primarily by selling CDMA chipsets to mobile phone manufacturers such as Apple (NASDAQ:AAPL), Nokia (NYSE:NOK), Samsung and Motorola (NYSE:MOT), and by charging a royalty to mobile manufacturers on every phone sold.
We estimate the company’s chipset business constitutes 43% of the $42 Trefis price estimate for Qualcomm’s stock. In comparison, its mobile phone royalty business is about 29% of our estimate and its BREW mobile application platform, which is growing rapidly, accounts for less than 1% of the stock.
BREW is for mobile applications
In addition to CDMA chipsets, Qualcomm offers phone makers its BREW mobile application platform designed to make it easier for developers to create mobile software applications that work across a variety of mobile phones. BREW is mainly targeted at basic mobile phones that do not have their own application ecosystems. In comparison, the iPhone, BlackBerry and Android-based phones have their own separate application platforms.
Qualcomm works with mobile operators like AT&T to encourage adoption of the BREW application delivery system so that mobile subscribers can purchase applications for their mobile phones through their mobile operator.
BREW has seen a fast adoption in the last year. It has signed an agreement with cable operators like Cox Communications, and wireless operators like AT&T and Sprint to provide BREW platform related services. The revenue earned through applications are then distributed among developers, Qualcomm and the wireless operator.
BREW is less than 1% of Qualcomm’s stock
We estimate that BREW along with Qualcomm’s other internet services (like QChat push-to-talk service) could earn Qualcomm around $220 million in revenue in 2010. This is a small amount compared to the $7 billion in revenue we estimate Qualcomm’s chipset business will generate in 2010 and the nearly $4 billion we estimate the company will earn from royalties in 2010.
We estimate that Qualcomm’s BREW constitutes less than 1% of the $42 Trefis price estimate for Qualcomm’s stock. You can modify our forecast above to see how Qualcomm’s stock would be impacted if its BREW revenues were to grow even more than we forecast as a result of greater mobile application demand from mobile phone users.
For additional analysis and forecasts, here is our complete model for Qualcomm’s stock.
Disclosure: No positions