SWKS: QCOM market traction

[GauchoRico]

Here is a partial transcription of the last QCOM earnings conference call which was held on 4/22/2015 and covers the March 2015 calendar quarter.

"With respect to the roadmap, we remain confident that our differentiated Snapdragon processor and modem leadership positions us well across multiple price tiers and customer segments entering the next product cycle. In the premium tier, we are very pleased with the design traction on the Snapdragon 810 with over 60 designs having won the key premium design slots with the exception of Samsung.

Since our last earnings call, LG has begun shipping the innovative G Flex2, Sony has announced the incredibly thin Xperia Z4 phone and tablet, and Xiaomi has announced the Mi Note 4 with category 9 carrier aggregation. Recently teardowns and press reports correctly highlight the advantages delivered by our integrated approach.

We are also encouraged by the customer interest in our new Snapdragon 820, which is on track to ship in the second half of this calendar year and is built on the latest FinFET node. The Snapdragon 820 represents a new design point for our SoC architecture and will be the first to include our new custom 64-bit CPU microarchitecture.

Since our last call and in response to the competitive environment in China, we have also enhanced the Snapdragon 615, which will be commercial this year. In addition, we expect a modem transition in China later this year and we are seeing signals to the OEMs from the operators consistent with this view. Our Snapdragon 425 with industry leading uplink carrier aggregation and a new low-cost RF front-end is well positioned for this opportunity and is on track to be in devices later this calendar year, well ahead of our competition.

Turning to the longer-term outlook, the smartphone opportunity remains a strong positive for Qualcomm and we forecast continued healthy global demand in the near-term and over the next several years. IDC estimates that over 8.5 billion smartphones will be sold from 2015 through 2019. We also continue to gain traction in adjacent areas where our mobile technologies and capabilities can deliver next generation solutions. Areas such as automotive, the Internet of Things, mobile computing, and networking, these areas are expected to represent large new opportunities for Qualcomm with over 5 billion new non-phone connected device shipments expected in calendar year 2018.

Further, shipments in these areas are contributing over 10% of QCT’s fiscal year 2015 estimated revenue. In automotive, for instance, we have over 40 connected car programs with 15 plus OEMs and we recently announced two new modems, the Snapdragon X12 and X12 that augment our portfolio to support connectivity across all tiers of the automotive industry.

Our scale and position in mobile makes us well positioned to capitalize on these opportunities. In summary, we are well positioned to address the significant opportunities ahead given the strength in our core businesses and traction in new growth opportunities. We are focused on completing our implementation of the rectification plan in China, concluding new license agreements in China and improving compliance. We’re also investing in the future generations of the modem and connectivity, including 4G enhancements such as LTE-U and 5G, as well as future evolutions of Wi-Fi and the convergence of Wi-Fi and Cellular. We are confident in our QCT roadmap for the reasons I just explained, but intend to take a comprehensive look at our cost structure in-light of the changing industry dynamics and structure."

[nevercontent]

Apple designs its own processors for its devices. That’s a competitive advantage for them, so it’s almost impossible to imagine them throwing all that out to replace it with Snapdragon. So we’d really just be talking about the RF content, and I don’t know how much of the integrated benefits/value of the QCOM package are diminished at that point.

I’m not up to speed on QCOM’s offering, though that’s probably something I’ll be looking into more. But my impression from the SWKS conference calls is that SWKS is practically working side-by-side with its major customers in designing this stuff. So I think a competitive thesis that is based primarily on price probably oversimplifies the relationship, especially with the leading manufacturers like Apple and Samsung that can demand premium prices and afford to pay an extra couple of bucks per device to ensure they’re working with a proven company that has delivered time and time again for them.

And because of that side-by-side relationship, it also means SWKS has a lot of visibility into the roadmaps of their customers, and should therefore have a lot of visibility into their own business. So when management is very confident about the future, I think there’s probably a basis for that confidence. It also probably means they know better than most of the competition exactly where Apple and Samsung are headed and what they need, and so have much more focused R&D based on their customer’s exact specific needs.

And, of course, SWKS is expanding beyond mobile. From the Q2 CC: Our broad market product lines which serve the Connected Home, networking, media, automotive, and medical markets have grown at 27% year-to-date. Year-to-date! They have another half of their fiscal year to go. So they’re also actively diversifying their business, and seeing a lot of traction in that.

Anyway, I don’t want to discount the competitive threat from QCOM, or any other competitor. I want to learn more about it. But I also think the landscape has changed a bit, and it’s not just a matter of comparing features and prices anymore for these device manufacturers: the relationship is much more complex than that. I think just tossing SWKS into the “chip company” box with everything that has historically meant is probably an over-simplification of the business. But we’ll have to see what happens over time.

That’s how I’m thinking about it, anyway.

Neil
Long SWKS