This week Qualcomm hosted an analyst event. Their presentations contained a lot of interesting detail (impressive given how few words they put on each slide). In August, we speculated about how Qualcomm appeared to be shifting its focus towards becoming an automotive supplier, and last month we wrote about the ways that their RF business may be able to save their core mobile business. This week’s events confirmed those theses, and showed how the company is repositioning itself.
If we had to pick one theme for the event we would boil it down to a single word – Edge. Qualcomm wants to position itself as the leading semiconductor vendor for the edge. Of course, this is a heavily laden word. It has become one of those terms that means all things to all people like Cloud or IoT. Qualcomm’s definition appears to be any user device that moves – phones (of course), laptops, cars and AR/VR. We could quibble with the term, but there is strategic logic to Qualcomm’s position.
Last week, we wrote about the nature of semis for autos, concluding that the best chip for many cars today looks a lot like a mobile applications processor, and that Qualcomm was well placed for this. This theme carries throughout their materials, not just for autos but for many other product categories. The beauty of this strategy is the way they can build on products that they already offer, which they can now adapt fairly easily for other end-products. This was borne out in slide after slide showing the impressive roster of customers the company has signed up in all the various sectors.
As much as we came away with a positive impression of their strategy, we still have a few niggling doubts. A highlight of their CFO’s presentation was the company’s diversification of revenue, broadening beyond mobile. By their metrics mobile is now down to 62% of revenue, with the other 38% coming from new markets – RF, Auto and IoT. But this is a bit misleading. Many of their new segments are still largely tied to mobile.
Take RF front-end as an example. The vast majority of this business is attached to smartphones. So while they get full credit for the tremendous growth they are enjoying there, it does not exactly make a case for diversification. Similarly, their IoT business may also include a fair component of smartphone-attached Wi-Fi and Bluetooth connectivity chips.
That being said, this should not take away from the fact that Qualcomm now has a clear, sensible strategy for growth. We could argue that their automotive revenues are still largely driven by cellular modems (“Telematics” as they call it) and not futuristic automobile processors, but the auto supply chain moves slowly. The fact that their auto logo slide has over 30 names on it speaks to deep penetration and potent seeds for future growth.
So while we are still cautious about Qualcomm’s mobile business, our chief takeaway from the event is that the company is on the right track.