Qualcomm (
QCOM
) chipsets pricing will likely decline around 10% in 2010 from
around $18.10 in 2009 to $16.30 in 2010, based on our
estimates. This pricing decline is much faster than the
average 4% decline that Qualcomm's chipsets experienced in the last
4 years.
We believe that the factors leading to lower chipsets prices
are: 1) rising competition from players like Broadcom (
BRCM
), Texas Instruments (
TXN
) and Infineon Wireless, which was acquired by Intel (
INTC
), and 2) new chips designed for lower price points to tap emerging
markets demand.
While our base case scenario envisions pricing declines to level
off due to the growth of the smartphone segment that should offset
the downward pricing pressures, we assess the downside risk here in
the event that the current rate of pricing declines continue into
the future.
The current Trefis price estimate is around $50 for
Qualcomm stock
, which is close to the current market price.
Will Chipset Pricing Continue Downtrend ?
Chipset prices declined at a faster rate in 2010 due to
increasing competition and introduction of new chipsets designed
for lower price points. However, there are some encouraging signs
for Qualcomm going forward. Firstly, in the second half of fiscal
year 2010, Qualcomm shipped 4x the number of Snapdragon chipsets
compared to the first half of fiscal year. Snapdragon is an
application processor, which is an integral part of a smartphone
and is used for giving the computing power for handling mobile
phone software and applications. Snapdragon competes
with Nvidia's (
NVDA
) Tegra processor and Texas Instrument's (
TXN
) OMAP 4 chipset in the mobile phone processor market.
An iSuppli report estimates that the Snapdragon chip used
in the Nexus One phone costs around $30.50, which is almost double
that of our estimate of Qualcomm's average chipset pricing of
$16.30 for 2010. Hence the fast Snapdragon growth should slow down
the average chipsets pricing decline.
Snapdragon a Boost
Snapdragon's growth will depend on two factors 1) the smartphone
market growth and 2) its market share in smartphone market. The
smartphone market grew at a healthy rate of 96% in the third
quarter of 2010, compared to the 35% growth shown by the overall
mobile phone market in Q3 2010 . According to the same report,
Android-based smartphones' market share grew at a fast rate from
only 3.5% in 3Q 2009 to 25.5% for 3Q 2010. Qualcomm's Snapdragon
chipsets are extensively used in Android smartphones and so
Qualcomm should benefit from both smartphone market growth and
Android's growth in this market.
Downside Risk: 20% Downside if Chipset Prices Decline at
Current Rate
The average chipsets pricing has been declining at a rate of
around 10% for the past two years. We currently expect the decline
to slow down to around 1% over the Trefis forecast period due to
the reasons discussed above. However, in the scenario where the
chipsets pricing continue to decline at 10% rate to reach around
$8.60 by the end of Trefis forecast period, there could be a
downside of around 20% to the
$50 Trefis price estimate for Qualcomm stock
.
You can see the complete $49.93 Trefis Price
estimate for Qualcomm stock here
.