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Is Qualcomm past it's best?

I do not think that Alex Cho is an analyst. He is I believe just a Seeking Alpha blogger, which organisation I find myself referring to less and less. His name never turns up on any transcripts. With respect to your substantive question QCOM's principal market is in a vice, between Apple/ Samsung and the lower end providers. It is trying to escape into new markets, IOT and Servers. Difficult to express any opinion as to whether or not it will succeed. Maybe 2016 will give some clues.
 
Alex Cho is a young blogger without any understanding of Qualcomm - past, present, or future. He's a typical agenda-driven trader-type, talking his book, and writing pay-for-click junk that's otherwise unfit for publication. He is a symptom of a broader problem, and has never been an analyst anywhere. Is he paid by others to write such FUD, or is he self-directed? Doesn't matter; but it's not journalism.
 
Sounds like the type of guy who should read Chapter 9 of "Mobile Unleashed".

Some comments on the Cho piece:

Is he even aware Qualcomm owns Atheros, or Gimbal?
"Bluetooth and Wi-fi connectivity is where most of the action is at with regard to wearables and connected TVs. So, I'm not anticipating these new categories to add much to Qualcomm's top line."

Does he understand Qualcomm makes money on every CDMA phone, not just ones where their chips are designed in?
"This may mean that licensing for handset silicon content could shrink because it's based on the component cost as opposed to the handset cost."

And, has he ever heard of AllJoyn? We are going to see a major IoT push coming at CES 2016 now that Windows 10 is out.

At least he got the mobile growth rate shrinking part correct, although 5% is a lower number - most estimates I've seen range from 8% to 11%.

And he misses what we see as the most important point. Qualcomm's distinctive competence has always been digital encoding, which traced a path through the Viterbi decoder to CDMA and LTE. How that translates into other markets like the IoT and wearables remains to be seen. Some analysts have said the key piece is Qualcomm's Hexagon DSP - it's good, but not unique. If Qualcomm creates a must-have IP block that locks into some specification tightly, that would be a licensing win.

He does hint at the future and 5G, and I do agree top line contribution from that and several other new technologies is a few years away.

I'm glad Qualcomm management put away the idea of splitting the company into chips and licensing, that would have gone badly.
 
All good acquisitions, but a challenge remains. How does any company replace a big business in the smartphone market? No doubt QCOM is working on a lot of areas and has a lot of assets to build on, but it's really difficult to see how any of these will have the near-term scale * ASP that QCOM has been used to. The same problem applies to Apple and Samsung. The pat answer is IoT, but IoT at a similar scale will likely have very low ASPs and at similar ASPs will have a much lower scale. The only way I see out of this trap requires both consumer scale and multiple $100 per device. It happened with smartphones, but can it happen again? This isn't so much a tech question as a consumer psychology question. Maybe (real) personal health monitors?
 
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The smartphone market isn't going away, and therefore doesn't need to be "replaced". Its absolute growth rate is still positive, and the transition to 3G/4G and eventually 5G, from 2G GSM, is still underway. Every new 3G and 4G subscriber represents previously uncaptured business for Qualcomm. And while IoT and M2M devices may carry lower ASPs than smartphones and tablets, their volumes will somewhat mitigate those lower ASPs on the QTL side, while QCT gets a fair portion of all silicon requiring mobile connectivity. Having all connectivity IP in house to service the requisite multitude of modem possibilities, as well as their unsurpassed proficiency in integrating same, plays into their strength. As for your reference to personal health monitoring, as a subset of IoT, QualcommLife has already established a robust ecosystem and pioneering capabilities to exploit that market.
 
Agreed its not going away, but that's not exactly my point. First, a slow-growth market is less exciting to investors and second it has become more apparent that handset manufacturers can change allegiance quickly (eg Samsung with QCOM). Having a large concentration of revenue subject to this kind of risk will also make investors wary. I have no doubt over time and given a following wind QCOM can mitigate this concentration in other directions, but so far that is something to be proven rather than a necessary outcome.
 
Irrespective of whose silicon is used in any 3G/4G device, QTL gets royalties, which are the source of most Qualcomm profits. Additionally, QCT still has the dominant modem share, and a large CPU/GPU business, in a growing market. As for smartphones and tablets, the NDRC remediation allows QTL to capture royalties in China on 3-mode devices that were previously uncompensated (GSM/TD-SCDMA/TDD-LTE), and as the developing world transitions to 3G/4G, those devices will also be captured for the first time. Add in drones, automobiles, servers/data center (almost commercial), health, wireless charging, and IoT, and you have a return to growth drivers on the horizon. I wouldn't bet against QCOM, as they have a pristine balance sheet for acquisitions and/or R&D, and unique mobile DNA, now better managed.
 
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JeffreyHF said:
The smartphone market isn't going away, and therefore doesn't need to be "replaced". Its absolute growth rate is still positive, and the transition to 3G/4G and eventually 5G, from 2G GSM, is still underway. Every new 3G and 4G subscriber represents previously uncaptured business for Qualcomm. And while IoT and M2M devices may carry lower ASPs than smartphones and tablets, their volumes will somewhat mitigate those lower ASPs on the QTL side, while QCT gets a fair portion of all silicon requiring mobile connectivity. Having all connectivity IP in house to service the requisite multitude of modem possibilities, as well as their unsurpassed proficiency in integrating same, plays into their strength. As for your reference to personal health monitoring, as a subset of IoT, QualcommLife has already established a robust ecosystem and pioneering capabilities to exploit that market.
Click to expand...
Jeffrey provides me with more information than anyone else but I am still left with the question of how to understand what exactly is the IOT market, if indeed it can be considered as a market at all. The one company that is in a position to know what the TAM is in each segment they have defined is ARM but they resolutely refuse to discuss volumes and ASPs. TSMC is in a similar position and they also provide no information. It is fairly clear that volumes will be colossal and ASPs minimal relative to smartphones - ARM has mentioned less than 50 cents - and it is also clear that current CAGR is likely over 20% but I for one do not even know what the base is. Also I suspect that those who are guessing how many persons will buy wearables, how many vehicles will be automated and so forth are sticking wet fingers in the air like everyone else. In the meantime I would like to believe that QCOM will escape from what many see as position of difficulty in the smartphone market.
 
There are 3 tiers to the IoT - edge, gateway, and infrastructure. The "minimal" ASP and gigantic volume assumptions only apply at the edge. For Qualcomm, the sizable opportunity is in the gateway and infrastructure, with some edge devices (a' la CSR as Jeffrey mentioned, and Atheros and Gimbal and other efforts) mixed in. Keep in mind smartphones are not IoT edge devices, they are gateways connecting an individual to tens of other devices. While consumer IoT makes all the headlines, the industrial IoT may be where the biggest volumes are, and there will be higher ASP opportunities there.

As the MCU companies fight it out at the edge, Qualcomm will work the other two tiers. This matches their culture where they went to build out a CDMA infrastructure first before millions of phones came after. Fragmentation in the IoT means there is no single mass infrastructure yet, but I'm guessing the NB-IOT and 5G efforts will align somewhere down the road and put Qualcomm in a leadership position.
 
You guys all brought up good points. But I have to say Alex Cho is an analyst or not is not the main issue. There are too many analysts, many of them actually work for some real financial firms/medias, are at most just as good as an average blogger (or worst than an average blogger).
 
Don, yes the NB-IOT (via a custom version 4G/5G ) will probably be a big thing, but let's the business model of the competition , i.e. LORA:

LORA is owned by semtech, and as far as i can see, they aim to sell billions of $2 connectivity chips, and in order to do so they are actively working on commoditizing the gateway - both by making it operate in the unlicensed band , releasing specs, open source , etc... , and making a single gateway cover a very large radius. There's was even a sucsessful open-source effort to freely cover Amsterdam with Lora bandwidth. Heck there's even a french effort to cover europe with 200K lora gateways that you just plug into the socket , with a BOM of probably less than $20-40 .

So this could lead to a situation of very low revenue for gateways, with most of the revenue of the IOT concentrated on the mcu's, looking something like (optimistically) tens of billions IOT nodes with mcu costs of $0.5-$2 selling over 5-10 years, and maybe some billing revenue.

Of course that's only for narrowband , slow IOT. The high speed IOT (cameras, cars ,etc) is something different.
 
hist78 said:
You guys all brought up good points. But I have to say Alex Cho is an analyst or not is not the main issue. There are too many analysts, many of them actually work for some real financial firms/medias, are at most just as good as an average blogger (or worst than an average blogger).
Click to expand...
For me, an analyst works for or provides his/her output to financial institutions and is regulated by the authorities, in the UK by the FCA. There are good and bad ones of course. One check I like to do when they pontificate is to see if they have attended the transcripts of the companies they make their statements about. If you follow these things as I do you get a feel over time for which companies are transparent and, after all, the most elementary research is to listen to what CEOs/CFOs actually say.

With respect to to bloggers there are some worth reading. Hibben, for example, does research and comes up with good information at times. He is always entertaining. I do not find Cho incisive and in other respects I do not think SA exercises much quality control.

As as to where one can go for authorative business info, I wish I had an answer.
 
Thanks anyway Brian. I guess the trick for non-experts like me is to find who the experts are following, then follow them. I have noticed that SA recently had Hibben respond to the Apple nay-sayers with his own view (more positive), though that doesn't seem to have stopped the negative reports.
 
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