- China is a double-edged sword for QCOM – regulators and scofflaws plague QTL, while QCT is successfully competing for Snapdragon and baseband business.
- Projected device ASP erosion of 9-10% will hit royalties, but will be offset by chipset unit volume growth driven by emerging market smartphone demand
- QCOM is driving global wireless technology innovation, combining aggressive R&D spend with historical leadership and positioning itself to attack new opportunities.
- The regulatory and licensing issues will take several quarters to resolve – meanwhile QCOM’s potentially dominant position may be temporarily immaterial to investors.
QCOM’s annual analyst day saw rookie CEO Steve Mollenkopf and his leadership team take the stage to persuade investors of the company’s dominant position in nearly all wireless markets despite headwinds from regulators in China. The company earlier in the day unveiled a new baseband chip pushing the boundaries of LTE-Advanced technology with 450 Mbps speeds in a more power efficient 20-nm package. It also revealed that it is planning on entering the server chip market, with Facebook a likely launch customer deploying QCOM’s ARM based server chips across its webscale data centers. Despite the company’s leading positions across mobile and plans to enter adjacent markets, growth over the next five years is expected to proceed at an 8-10% clip, fairly conservative guidance given the continued growth of smartphones and the likely size of emerging mobile opportunities. The prospect of Chinese regulators levying stiff penalties continues to haunt management and investors with Mollenkopf’s team giving only vague indications progress is being made for a resolution. Still, the company tried to allay China concerns with videos during the interludes between speakers featuring companies like Xiaomi, China Mobile, and foundry SMIC extolling the virtues of their QCOM partnership.