Qualcomm in adjacent markets
Qualcomm (QCOM) is a leader in the Smartphone market because of its wireless connectivity solutions, network infrastructure, and low-power, ARM-based Snapdragon processors.
As we come closer to being a fully connected world, mobile technologies are being adopted by more and more devices. Qualcomm is tapping into this opportunity to expand in the wearables, automotive, IoT (Internet of Things), PC (personal computer), and data center markets.
Qualcomm has developed Snapdragon processors for the wearables and automotive spaces. The company claims that its Snapdragon Wear processors are inside more than 80% of Android Smartwatches worldwide. QCOM witnessed strong demand from the automotive, networking, and IoT markets in fiscal 2Q17, indicating that its products were gaining traction.
Qualcomm versus Intel in the PC and data center spaces
Qualcomm has partnered with Microsoft (MSFT) to develop ARM-based Snapdragon processors that power Windows 10 laptops and Centriq 2400 processors, which power servers.
Until now, Windows PCs were powered only by Intel’s (INTC) x86 chips. Now, Qualcomm will compete with Intel even in the PC and data center processor markets. Qualcomm’s CEO, Steve Mollenkopf, said on the company’s fiscal 2Q17 earnings call that Snapdragon-powered Windows 10 laptops would be launched by PC vendors in fiscal 4Q17.
Qualcomm is also in the process of completing its acquisition of automotive semiconductor giant NXP Semiconductors (NXPI), and it expects to complete this transaction by the end of fiscal 2017.
Impact of NXP’s acquisition on QCT’s earnings
In fiscal 2016, NXP earned an operating margin of 26.6% on revenue of $9.5 billion on a non-GAAP (generally accepted accounting principles) basis. On the other hand, QCT (Qualcomm Code-Division Multiple Access Technology) earned an operating margin of 12% on revenue of $15.4 billion in fiscal 2016.
The integration of NXP could increase QCT’s revenue by 60% to ~$25 billion and its operating margin by ~20% in fiscal 2018.
Qualcomm is not only expanding its processor business but also its wireless connectivity business by taking the lead in the 5G (fifth-generation) revolution. Next, we’ll look at the company’s efforts in the 5G space.