Posted on Thursday, Oct 4th 2007
By Vijay Nagarajan, Guest Author
In previous articles, we looked at QualComm’s legal wranglings and the potential impact. Ms.Mitra subsequently posed a question on whether QualComm (QCOM) is a stock to shunt. In this article, I will analyze the impact of the various technologies and the handset market on QualComm thus opening up a debate on its short and long term prospects.
Before we proceed, I do wish to highlight some key facts-
- All main 3G standards (CDMA2000, EV-DO, WCDMA, HSDPA) use CDMA for the underlying medium usage principles
- EV-DO Rev 0, A and B are data-optimized evolved versions of QualComm-proprietary CDMA2000 1xRTT
- WCDMA is 3GPP’s next generation standard slated to take over from GSM which has around 65% market share today. HSDPA/HSPA in turn is WCDMA’s data-centric off-spring.
Let us start by looking at the graph below that highlights the total handset shipment estimates over the next five years.
As we can see –
- The market-share of CDMA-based handsets (including all 3G standards mentioned above) will increase from around 35% in 2007 to 75% in 2012.
- WCDMA/HSDPA handsets will account for 56% of total handset shipment estimates in 2012 at a CAGR of 28.5%.
- Close to 60% of 3G handsets will be HSDPA/HSPA capable in 2012.
For QualComm, if its business plan is not hindered by lawsuits and unhappy customers, these above trends imply that –
- Its IP will be in all 3G phones. QualComm will obtain royalty from 3 out of 4 phones sold in 2012. And this is money shaved off the profits of Nokia (NOK) and the likes.
- About 50% of the chipset market, previously untouched by QualComm, has opened up for the company to capture. This is the direct result of WCDMA displacing GSM.
- Data-centric HSDPA phones, in which user-experience (download speeds etc) is more important, rely more on the modem quality than current voice-centric phones. QualComm’s engineering leadership position allows the company to tap into this market by forging new alliances. These phones with typically higher selling prices will also boost the margins from the company’s chip business.
While this is ideal for the San Diego company, there are other companies in the value chain also protecting their interests and trying to maximize their margins. Thus, there are two impeding factors to take note of –
- The lawsuits that seek to undermine the value of QualComm’s IP: This is complemented by the constant push-and-pull exercise during IP licensing discussions.
- The WCDMA/HSDPA market share: QualComm now has around 20% market share attributed primarily to Samsung and LG. With Motorola backing out in favor of Freescale and TI, about 60% of this market is effectively shut out for the present. So, unless QualComm is able to gain back Motorola or win the hearts of the folks at Nokia, its ambition of getting 50% of this market lies with Samsung and LG working miracles while retaining its services.
So, QualComm needs to essentially work towards maximizing its 3G profits by balancing the contentious IP issue with more chipset-market share. In my next article, I will explore revenue forecasts over the next five years and see strategies that can sustain QualComm until the age of 4G begins. And as we will see, a lot of it depends on how the company perceives 3G and whether it has the right footing when 4G comes of age.
- Handset shipment numbers and market share trends are sourced from 2006 Strategy Analytics studies and skewed based on QualComm’s latest guidance update.
- CDMA/EV-DO Handset ASPs are based on 2006 research data from Michael Thelander’s Signals Research LLC.
- WCDMA/HSDPA ASPs are calculated based on CDMA handset ASP data in QualComm’s guidance and extrapolated.
- Royalty rates are calculated based on 2006 QualComm revenues, ABI Research reports from 2007 and IDC reports from 2002.
- QualComm current chipset market share is based on 2006 IDC reports and current quarter handset market share data.
This segment is a part in the series : QualComm