Qualcomm (
QCOM
) competes with players like Broadcom (
BRCM
), Marvell (NASDAQ:MRVL), Infineon (now acquired by Intel (
INTC
)) and Texas Instruments (
TXN
) in the cellular baseband market. Qualcomm's application processor
named Snapdragon competes with Nvidia's (
NVDA
) Tegra processor and Texas Instrument's OMAP 4 processor.
Qualcomm primarily makes money by selling mobile phone chipsets
and earning royalties from licensing CDMA-based technology to
mobile phone vendors like Motorola Mobility (MMI), Samsung and
LG. Qualcomm sells cellular basebands, which are the core chipsets
used in mobile phones, to handle voice/data communication between
wireless devices. The company also sells other chipsets used for
power management, bluetooth connectivity and application
processing.
See our full analysis and $53.82 price estimate
for Qualcomm
Lately, Qualcomm has started to concentrate its effort on
tapping the fast growing tablet chipset market. Although it is too
early to tell whether Qualcomm can generate the same level of
success in tablet chipsets that it did in mobile phone chipsets,
the tablet market's fast growth potential does provide an
opportunity to boost top-line revenues.
We estimate that mobile phone chipsets and royalties account for
39% and 37% of our
$53.82 price estimate for Qualcomm stock
. Our price estimate stands roughly 8% below market price.
Qualcomm Starting to Focus its Efforts on Tablet
Chipsets
According to management, Qualcomm has more than 150 Snapdragon
devices in development, including more than 20 tablets. It also
mentioned that it is designing a new dual-core chipset named MSM
8660 that would be well suited to both tablets and smartphones.
Another initiative that Qualcomm recently undertook was the
acquisition of Atheros (ATHR) to diversify its product portfolio
beyond mobile phones. Qualcomm had previously lacked the product
range (particularly in Wi-Fi chipsets) necessary for non-handset
devices like tablets - Wi-Fi is an important component for PCs and
tablets. The Atheros acquisition plugs this gap for Qualcomm (see
our article
Atheros Acquisition Provides Immediate Upside for
Qualcomm Stock
).
Tablets Expand Qualcomm's Addressable Market
Success in tablet chipsets would tremendously expand the
addressable chipset market for Qualcomm. Qualcomm's addressable
market has previously been centered around mobile phones, which we
believe will increase from around 1.5 billion units in 2010 to
around 2.1 billion by the end of our forecast period.
According to IDC, the tablet market is expected to grow from
around 45 million units in 2011 to 71 million in 2012. If the
tablet market is able to sustain this level of growth over the
long-term, it would imply a market size of 400 million units by the
end of our forecast period. This would increase our
end-of-forecast-period estimate for Qualcomm's total addressable
market from 2.1 billion units to 2.5 billion. This scenario could
spur 15% upside to our
$53.82 price estimate for Qualcomm stock
.
We also note that Qualcomm's Mirasol technology is featured
in display panels for tablets, as well as smartphones and
e-readers. This technology is designed to create a better
viewing experience in various environments ranging from dim indoor
lighting to the brightest outdoor sunlight. It can display color
videos at fast speeds, is energy efficient and consumes less
battery power than alternative options.