QCOM, BRCOM: CLSA Sees Showdown In China
By Tiernan Ray As I mentioned earlier, there were several different notes today on the outlook for Qualcomm ( QCOM) based on various industry data points such as handset trends.
CLSA Asia Pacific Markets analyst Srini Pajjuri this morning compares the approaches of Qualcomm, Broadcom ( BRCM), Marvell Technology Group ( MRVL), and Taiwanese chip maker MediaTek ( 2454TW) in the smartphone world.
Pajjuri concludes he likes Qualcomm and and Marvell best of the four, rating their shares Outperform and Buy, respectively. He rates Broadcom Underperform and Mediatek, Sell.
Among the things Pajjuri likes about Qualcomm is that it is the most profitable, with its licensing business model, and he sees it outgrowing everyone as it gains share in baseband shipments in 2012 in LTE phones and at customers Apple and Nokia ( NOK). Conversely, he’s worried about Broadcom’s “combo chip” business at the hands of Qualcomm (which bought competitor Atheros this year), and he laments the lack of progress by Broadcom in selling baseband processors.
More interesting, however, is Pajjuri’s hypothesis that a kind of titanic battle is coming to all four vendors as China turns into the key battleground:
Despite the similarities, these companies rarely competed with each other in their core markets. However, that is set to change as all of these companies are aggressively targeting 3G/smartphone markets in China. Margin pressures are already increasing as a result and we expect that trend to continue. QCOM has established itself as the dominant 3G chip supplier in China, and is also expanding into the TD-SCDMA market. MRVL has an early leadership in TD smartphones and we expect tailwinds to continue despite QCOM’s recent entry. BRCM is looking to re-enter the China handset market but the progress thus far has been limited. We believe BRCM has better opportunities to participate in China through its Nokia relationship than domestic OEMs. MediaTek continues to dominate the 2G market, but QCOM’s aggressive strategy in low-end 3G poses a significant headwind for MediaTek, in our view.
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