Monday, March 9, 2009

Is Qualcomm going up against Intel?

It's been months and months since I last wrote about Qualcomm (QCOM). The company has had a resurgence of sorts. The stock is actually showing a gain so far in 2009. They just increased their dividend at a time when so many other companies are slashing theirs.

So the question is, can they keep it up?

The company provided guidance during their last earnings conference call that indicated shipments would be down but not drastically, as sales of cell phones were expected to be weaker on a year-over-year basis. Still, the company expects to be a prime beneficiary of the roll-out of 3G in China. And they are feeling optimistic after resolving their legal problems with Nokia (NOK) and booking $2.5B to renew the license agreement.

Qualcomm may be acting a bit over-confident but, on the whole, there is little doubt that they will be one of the companies that will come out of this recession as a survivor.

What is interesting, however, is where the company's strategy seems to taking it. I'm talking about Snapdragon.

Snapdragon is Qualcomm's attempt to create a platform for mobile computing devices. They seem to have all the parts in place: 1GHz processor, digital signal processor, Wi-Fi, GPS, camera, high resolution graphics and TV, multiple audio formats and various wireless technologies including Bluetooth. The platform is optimized for low power usage and can be combined with different RF solutions such as Qualcomm's CDMA or the European standard GSM, as in the Toshiba TG01. That's right, Qualcomm already has a design win in the Toshiba device which is somewhat of an iPhone clone.

The Snapdragon platform is meant to run either Linux or Windows Mobile. Qualcomm demonstrated a prototype that runs Google's Android operating system, as well. The CPU is the ubiquitous ARM processor. With high quality graphics, the platform has the potential to be a hand-held gaming device. The company also suggests the platform as the basis for netbooks.

What does this remind me of? I recently wrote about the recent agreement between Intel (INTC) and Taiwan Semiconductor (TSM). This agreement signifies Intel's aspiration to become a serious player in mobile computing devices or, as Intel calls them, mobile Internet devices.

Whereas Intel is looking to provide the processing power and allow Taiwan Semiconductor to build the system components around the processor, Qualcomm is offering the platform as an integrated multifunction unit.

In both cases, the companies are looking out long-term. Except for smart phone applications, there really are no killer apps that are crying out for the devices being offered. Are they solutions in search of a problem?

It appears that both companies are looking at a trend that is becoming more and more prevalent. Design wins are becoming a function of how much integration can be offered by a vendor. By saving their customers the effort of designing and integrating multiple functions, these companies can offer greater value and a solution that is easier for the customer to mold into a finished product. This is the same story we heard from Skyworks Solutions (SWKS), for example.

In this competition, it looks like Qualcomm has a lead on Intel with respect to integration. Qualcomm is also a prime vendor in the cell phone industry whereas Intel is just scratching surface there. Still, Intel is already a major player in netbooks while Qualcomm has yet to see a Snapdragon-based netbook hit store shelves.

It will be interesting to see how this plays out as these two companies, leaders in their respective industries, increasingly find themselves competing with each other.



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