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Qualcomm Eyes China to Grow in RF and 5G

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Qualcomm’s growth opportunities

In the previous part of this series, we saw that Qualcomm (QCOM) is expanding its ARM-based SoCs (system-on-chips) business beyond smartphones and into automotive, IoT (Internet of Things), laptops, and servers.

In the baseband modem space, where Qualcomm is legal challenges from Apple and fines from some regulators, the chip designer is eyeing the long-term opportunity of 5G. In the 5G space, Qualcomm is aggressively expanding in China (FXI), as the country is investing heavily in the 5G rollout.

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Qualcomm and RFEE

Qualcomm has expanded its RFFE (radio frequency front-end) portfolio to become the first provider to produce a comprehensive modem-to-antenna system solution. RFEE chips help smartphones communicate with the cell towers.

The growing need for comprehensive solutions saw Qualcomm secure RFFE design wins from OEMs[1. original equipment manufacturers] such as Google (GOOG), HTC, LG, Samsung (SSNLF), and Sony Mobile (SNE).

A one-stop solution would help OEMs deliver advanced mobile devices and accelerate the process of bringing products from research to commercial launch. The RFEE portfolio complements Qualcomm’s modem technology, and it’s a key element in the evolution and commercialization of 5G technologies in 2019. RFEE technology is expected to bring Qualcomm one step closer to 5G.

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Qualcomm’s 5G Pioneer initiative with China

Qualcomm (QCOM) has launched its 5G Pioneer initiative with Chinese handset makers Xiaomi, Oppo, Vivo, and Lenovo. Under this initiative, the companies would work together to launch super-speed 5G devices as early as 2019.

Qualcomm has signed a non-binding MoU[2. memorandum of understanding] with these four handset makers to purchase its 4G and 5G RF components, which would be worth $2.0 billion over three years. Qualcomm could enter into more such RFEE-related agreements with these and other handset makers going forward.

Early signs show that China would adopt the 5G technology quickly, which could result in these Chinese handset makers buying components worth in excess of $2.0 billion.

How could Qualcomm benefit from Chinese MoUs?

China is Qualcomm’s largest market, providing more than 65.0% of its revenues. Most of the Chinese mobile OEMs use Qualcomm’s Snapdragon processors to power their phones. This MoU would add RFFE chips to OEMs’ purchases, increasing Qualcomm’s content per phone.

In the future, Qualcomm could add more Chinese OEMs to its 5G initiative. Qualcomm could benefit from increasing its content per phone as well as from a larger consumer base. Qualcomm has also partnered with Samsung to facilitate the transition to 5G.

These 5G efforts indicate that Qualcomm can grow even without acquiring NXP Semiconductors (NXPI) or being acquired by Broadcom (AVGO). We’ll expand on the 5G growth opportunity in the final part of this series.

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