Qualcomm (NASDAQ:QCOM) has been the leading player in smartphone chips, crushing the likes of Intel (NASDAQ:INTC). However, with the smartphone market heading for saturation, both these players are looking at new areas to drive growth. Let us take a look at the different areas where these two chip giants are fighting, apart from smartphones, and try to find out the winner.
Future homes a new market for chip manufacturers
Qualcomm and Intel will certainly be affected by the smartphone market's saturation. The price war and the saturation of the market have led Qualcomm and Intel to focus on various other devices and gadgets used in living rooms and homes. Since smartphones are heading for saturation in many mature markets, the profit margins of smartphone manufacturers are shrinking and this also has effects on various chip manufacturers. Qualcomm, in 2013, made major revenue through selling chipsets for wireless devices such as smartphones and tablets, so it needs to diversify.
In 2013, Qualcomm increased its chipset portfolio targeted at segments other than smartphones and tablets, with the core area of concentration being devices in the living room. The HD processor of Qualcomm has enabled the company to explore the market of devices like Smart TVs, set top boxes, digital media adaptors.
Qualcomm recently announced the introduction of its smart gateway platform, which is an amalgamation of its network processing power and Wi-Fi capacity with intelligent systems to create a smart home platform. This will help Qualcomm establish its market in home securities, health care, and also single home energy use. The market for smart homes is estimated to grow at a CAGR of 17.74% from 2013 to 2020, and is expected to be worth $51.77 billion by 2020. Thus, in this potentially huge market, Qualcomm is looking to make the most of the opportunity ahead of it.
More catalysts and competition
In-car entertainment (infotainment), also known as ICE, is also taking off. Chipmakers like Qualcomm and Intel foresee a huge market in this segment. Analysts have estimated that the ICE market will grow at a CAGR of 12.1% from 2011 to 2016, so both Intel and Qualcomm are fighting it out here as well.
Qualcomm is targeting the automobile market with its Snapdragon 602A. This chipset is designed to enhance infotainment systems in future cars. The Snapdragon 602A features extra cores, which makes it a preferred choice for automakers to improve audio, video, and communications.
Intel has been concentrating on the infotainment market as well. Global automobile leaders such as BMW, Jaguar Land Rover, and Toyota are key clients of Intel for various instrumentation services used in their cars. BMW uses Intel technology for its professional navigational system.
Intel is using its IVI (In-Vehicle Infotainment) technology to target the automobile market. The atom processors of Intel provide major infotainment solutions in cars and automobiles. These atom processors are designed to deliver high efficiency with low cost for IVI solutions. These processors provide higher level of I/O flexibility, featuring integrated 3D graphics video encoder and decoder with memory and display controllers. These processors have a stable operation in wide range of temperatures (-40°C to +85°C), making them highly effective.
Thus, we see that both Qualcomm and Intel are looking to have a pie of the smart homes and automobile market. However, we need to see which one is a better investment.
Fundamental comparison and conclusion
Intel trades at a very cheap 13.5 times earnings while Qualcomm is more expensive at 19.3 times earnings. However, Intel still generates a substantial portion of its revenue from the slumping PC market, which is why its earnings growth estimate for the next five years is just 5% per year. Qualcomm might be expensive when compared to Intel, but the company is deeply entrenched into mobile and is looking to diversify further. Moreover, its earnings growth expectation of 16.67% is more than thrice of Intel's earnings growth expectation, making it a solid pick for the future.
Hence, investors looking to benefit from smart homes and automobile infotainment should definitely consider Qualcomm over Intel.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.