Qualcomm hosted an investor event yesterday to focus on the company’s automotive business. We went into the event fairly positive on this business and come away even more so. As we noted last year, Qualcomm looks to have the right product at the right time for the automotive market, and that is beginning to become apparent in their forecasts.
Some background. Qualcomm has had an automotive business for years, but the largely consisted of selling cellular modems for connected cars, GM’s Onstar for instance. The auto market is becoming more ‘digital’, which is changing the requirements of what the auto OEMs need from their semis vendors. The car of the future may be a fully autonomous data center on wheels, but the car of today and for the rest of the decade is more like a super powerful smartphone, and Qualcomm makes chips that fill that need.
At a high level, the Qualcomm team painted a fairly compelling vision of the future of autos. Traditionally autos are built around several key platforms – the drivetrain, the engine, the chassis, etc. Now they are adding an electronics, or really a software, platform to the mix. Consumer studies show that buyers, especially younger buyers, care far more about the electronics and user interface of the car than horsepower and torque. This has led the auto OEMs to hire ever larger development teams. Qualcomm’s goal is to provide the best silicon for that platform.
At the heart of their pitch to OEMs is that Qualcomm offers the most “open” semis system on the market. This stands in contrast to vendors like Mobile Eye and Nvidia who Qualcomm claim come to the market with more complete solutions including higher level software. This approach seems to be working as demonstrated by a number of items in the event:
- A giant slide full of logos of customers and partners. Every time they have put up this slide over the past few years it has gotten more crowded and has now passed to the point where it is more interesting to look at who is not on the list than who is.
- Video testimonials from senior execs at 6 major OEMs (GM, Stellantis, Great Wall, BMW and Honda) and two major software providers (Google and Amazon). All said what a great partner Qualcomm is . This is a pretty strong list of endorsements.
- Qualcomm announced their design win pipeline is now $30 billion, a big jump from past figures. And their CFO gave a pretty credible description of how they calculate that number. He is again proving to be very savvy in setting expectations with the Street.
Adding to all this, Qualcomm also broke out the impact on their licensing business. We have gotten this question a lot, so it was a good surprise to hear that Qualcomm will capture something like $4/car in license fees. This is not a big number, but we have to think Qualcomm is playing the long game here. If all those companies on the logo slide are signing licenses agreement it cements Qualcomm’s IP position in the market.
Another important update was the break out of Qualcomm’s auto revenue by product type. As much as their Auto segment has grown nicely in recent years, the vast majority of it remains sales of cellular modems. The far larger and strategically important product is their applications processor (Snapdragon). That will start to contribute a meaningful share of segment revenue in 2023.
All in all, they presented a strong story for the foundations of their automotive business. They answered a lot of the practical questions, leaving us with only longer-term strategic questions. Chief among these is what about autonomy? Our view is that autonomous vehicles are still many years from being a commercial reality. Qualcomm claims that their roadmap now reaches all the way to Level 4/5 autonomy. Much of that is unproven, but the company has plenty of time to deliver. Also noteworthy they said explicitly that they would be active in M&A. If anyone is looking for a start-up idea, take a look at Qualcomm’s roadmap and then design a chip and/or software that will plug the gaps in years 3-5 of that roadmap.
It also worth thinking about what the future of software in cars will look like. Qualcomm’s “we will support everyone’s software” approach is tailor made for attracting auto OEMs who worry about seeing all the value sucked out by some third party as happened in PCs and phones. To be blunt, we do not have a lot a faith in the auto OEMs ability to really deliver all the software they will need, but they have enough resources and time to prevent anyone else from making the attempt. And even here, Qualcomm is hedged as evidenced by both Google and Amazon execs making appearances.
Finally, what we found most interesting was Qualcomm’s CEO stating at the outset a new vision for what Qualcomm is – they are now looking to be the leader in “edge computing”. While that term in on the Top Ten list of most abused phrases, in this case it fits. Qualcomm knows that much of the future of compute will take place on the move – in our cars, our phones, our glasses – and they want to position the company for that future.
Photo by the Simpsons