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Understanding Qualcomm’s Vision of Future Growth Trends

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Nov. 11 2016, Updated 11:04 a.m. ET

Qualcomm on future growth trends

In this series, we discussed how Qualcomm (QCOM) has finally announced the long-awaited acquisition of NXP Semiconductors (NXPI), which should expand the QCOM’s exposure to the IoT (Internet of Things) and automotive markets. This move comes as the smartphone market matures.

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Mobile market forecast

IDC (International Data Corporation) forecasts that global mobile phone shipments will grow 0.3% YoY (year-over-year) to 1.97 billion units in calendar 2016 and grow at a CAGR (compound annual growth rate) of 1.7%, reaching 2.14 billion units between 2015 and 2020.

Qualcomm’s guidance for the mobile market

Qualcomm still has an optimistic view of the smartphone market, however. In its fiscal 4Q16 earnings call, Qualcomm Chief Executive Steve Mollenkopf stated that China continues to be the company’s major market as more handset makers switch to 4G. It expects a major portion of the growth in the global smartphone market in fiscal 2017 and beyond to come from India, Southeast Asia, and the Middle East.

It also expects the ASP (average selling price) of mobile devices to fall faster in the next few years and then to be flat. But the company pointed out that strong growth in China and other countries is coming not just from low-end phones but also from mid- and high-end phones.

Samsung’s (SSNLF) high-end phones Galaxy S7 and S7 Edge have, in fact, performed well. But despite a strong mix of high- and mid-end phones, Qualcomm’s reported lower ASP for fiscal 2016 than the global ASP. For fiscal 2017, Qualcomm expects mid-single-digit growth in handset volumes.

Qualcomm’s guidance for 5G and IoT

As the smartphone market slows to single-digit growth, Qualcomm is moving into IoT and automotive. The company stated that telecom operators are now focusing on industrial narrowband LTE (long-term evolution) and consumer IoT devices.

Qualcomm is also ahead in the 5G revolution, which would take networks beyond mobile to everything from home to cars and industries by 2020. Moreover, it’s working toward global 5G standardization and working with network operators like Verizon Communications (VZ) to test 5G.

This combination of 5G and mobile, automotive, security, networking, and IoT leadership could put Qualcomm at the center of the connected world. In the past 30 years, Qualcomm has focused on mobile networks, but in the next 30 years, it will focus on the interconnected world.

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