I hope Mike Buckely is OK. His last post was in Jan of 2008.
Here is a post from Slacker regarding QCOM that I wanted to share with you all and get your opinion:
To: Jim Mullens who wrote (5137) 5/6/2009 9:08:23 PM
From: slacker711 4 Recommendations Read Replies (1) of 5161
The fact that the baseband supplier community is consolidating, with at least two of the largest suppliers (Texas Instruments & Freescale) exiting the baseband market. Merrill wrote in 2008- “We see several potentially significant opportunities over the next one to two years for QCOM to increase its share in the WCDMA” . Further, Credit Suisse estimates that NOK accounted for about $1.8 bill of TIs $3.4 bill in wireless revenues, writing ---“Even assuming QCOM gains 50% of NOK’s wireless business from TI gradually, which we believe could be conservative, this could mean as much as a further $900 mn revenue opportunity in the long run….”
I do believe that Qualcomm is going to continue gain share for the next couple of years and should move from their current 40% or so of WCDMA chipsets to something above 50%. However, beyond that range, they are going to be fighting a couple of trends.
One is that the baseband is becoming a commodity. There was once quite a bit of differentiation between WCDMA basebands. If you read handset message boards in 2004, there were constant comparisons between WCDMA handsets for size, talk/standby times, and RF performance. For the most part, that is long gone, and the discussion has transitioned to features supported by the applications processor. The WCDMA baseband has essentially met the performance requirements for most consumers, which means that differentiation now comes mostly from price. QCT should be able to maintain their margins on the low-end for the next year or two due to their lead in single-chip basebands, but that technical lead wont last forever. They are going to be competing on an equal playing field in the out years with competitors with drastically lower cost structures and gross margin requirements. What Mediatek did to GSM is eventually going to be done with WCDMA as well.
The 2nd barrier for further share gains is simply going to be the preference of handset vendors to avoid a situation similar ot the PC industry. If you look at CDMA handsets, there is far less variation in specs than in GSM/WCDMA due to the fact that Qualcomm supplies 90% of the chipsets. Look at how many 2 and 3 megapixel cameraphones HTC, Samsung, and LG have released. That was a limitation set by the MSM7xxx series. The handset vendors couldnt distinguish their handsets based on specs since all of them were working from the same platform. As Qualcomm approaches 50%, this will become an increasing factor in handset vendors decisions on how much business to give to chipset providers other than Qualcomm. It is in their long-term best interest to make sure that STM, Broadcom, and Infineon survive. I believe that it is extremely unlikely that Nokia will ever give Q 50% of their business....to do so would be to follow down the path of the white box makers in the PC industry. You can see from Nokia's multiple vendor strategy that they will do everything to avoid that fate. Long-term margins for the handset vendors depend on differentiation....and that means insuring that there continue to be multiple suppliers of chipsets.
Without continuing share gains, the ASP pressures will evenutally pressure revenues. That is why I see Snapdragon as being so key to Qualcomm. It allows the possibility to open up entire new markets where Q is the low-cost provider attacking Intel (instead of the high-margin provider being attacked by Broadcom, Mediatek etc.).
What does it take to get to ~ $100 / share (about a 15% CAGR for 5 years). And, how can a 15% CAGR be achieved-
Honestly, I had thought you would have been looking for higher returns. I wont argue that 15% isnt possible, only that the bulk of the return is likely to come in the next two years or so.
I do believe that there is likely quite a bit Q could do on the expense side of the equation to continue delivering outsized returns beyond the next two years....however, I dont believe that this management team is geared up for that kind of discipline. They are still swinging for the fences hoping that one of their many wireless ventures will deliver the results necessary to move the revenue needle at Qualcomm. It might be a decent strategy if they had a better track record of delivering, but management has been abysmal along these lines. It is virtually impossible to have faith that they are going do a better job this time.
Slacker
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