The 5G chip battle is full of smoke, and Qualcomm has a chance of winning

The 5G chip battle is full of smoke, and Qualcomm has a chance of winning

After the US stock market closed on November 4th, Eastern Time, Qualcomm released its financial report for the fourth quarter of fiscal 2020. The financial report data showed that both revenue and net profit achieved a good rise, which also stimulated Qualcomm’s stock price to rise by nearly 13% after the market. As of the press release of the US Stock Research Institute, Qualcomm reported $128.97 per share, with a total market value of $145.5 billion.

The 5G chip battle is full of smoke, and Qualcomm has a chance of winning

Qualcomm seized the opportunity in the era of 3G and 4G smartphones and became the leader in the mobile phone baseband chip industry by virtue of this. With the rise of rising stars such as AMD and NVIDIA, Qualcomm is also facing more intense competition in the baseband chip market than before. competitive pressure. In the face of Qualcomm’s latest earnings report, how should investors view it?

iPhone 12 “enables” Qualcomm’s revenue for chips, and the loss of the largest customer may become a hidden future revenue

The increase in global demand for 5G mobile phone chips has pushed up Qualcomm’s revenue in the fourth quarter. According to Qualcomm’s financial report data this quarter, revenue data was 8.35 billion US dollars, compared with 4.8 billion US dollars in the same period last year, a year-on-year increase of 73%. Previously, the market expected Qualcomm’s fourth-quarter revenue to be 5.94 billion US dollars, and the actual revenue performance in this quarter far exceeded market expectations.

Specific to Qualcomm’s core business revenue in the fourth quarter:

– Mobile phone baseband chip (QCT) revenue was US$4.967 billion, a year-on-year increase of 38%;

-Technology Licensing (QTL) revenue was US$1.507 billion, a year-on-year increase of 30%.

Smartphone baseband chips are Qualcomm’s core business component, accounting for 59.5% of revenue this quarter. At present, one of Qualcomm’s largest customers, Apple, uses the X55 baseband from Qualcomm on the iPhone 12, and the X55 baseband is also the baseband used by most Android flagship phones this year.

The production of Apple’s iPhone 12 has driven the sales of Qualcomm’s baseband chips. The US Stock Research Institute believes that this is also the main reason for the large increase in Qualcomm’s revenue this quarter. Although the delayed release of the iPhone 12 has a great impact on Apple’s revenue, judging from the revenue data released this quarter, it does not seem to have a big impact on the baseband chip provider, Qualcomm.

The reason behind may be that the iPhone 12 has been delayed, but the demand for baseband chips is constant; second, Android phone manufacturers have a lot of demand for 5G baseband chips, and the financial report stated that Vivo and Oppo have also listed Qualcomm. List of suppliers of next-generation 5G baseband chips. This quarter, Qualcomm’s MSM (Mobile Station Modem) chip shipments were 162 million, a year-on-year increase of 7%.

In addition to working hard on 5G mobile phone chips, Qualcomm also has a large part of its profits from charging patent licensing fees. Every mobile phone sold in the world will be charged a little by Qualcomm, regardless of whether the mobile phone manufacturer uses Qualcomm’s chips.

The Qualcomm Technology Licensing (QTL) business increased revenue by $1.5 billion in the quarter from the previous quarter, a 30% increase from a year ago. The Qualcomm CEO also said he would lead Qualcomm’s efforts to diversify beyond the mobile phone market. Qualcomm said that in 2020, which ended at the end of September, revenue from chip sales to automotive and Internet of Things companies reached $3.67 billion.

The 5G chip battle is full of smoke, and Qualcomm has a chance of winning

Compared with the time line, Qualcomm’s historical revenue data fluctuates greatly, and the revenue for the whole year of fiscal 2019 declined year-on-year. From an industry perspective, the semiconductor industry is a cyclical industry, and it will experience a recession every 4-5 years. In the prosperous cycle, in the whole year of 2019 and even in the first and second quarters of 2020, the semiconductor industry as a whole was in a recession period, and Intel’s revenue performance was flat; AMD’s revenue for the whole year of 2019 increased by only 4% year-on-year.

The 5G chip battle is full of smoke, and Qualcomm has a chance of winning

However, in the fourth quarter, due to the advent of holidays such as Christmas, the consumer demand for Electronic products in the market has increased, which has also driven the demand for chips. The US Stock Research Institute also expects that in the first quarter of fiscal 2021, with the realization of the large-scale mass production of the iPhone 12 and the arrival of the consumer season, Qualcomm’s revenue still has a lot of room for imagination.

For Apple, the most important customer of Qualcomm at present, according to the previous court settlement documents between Apple and Qualcomm, Apple will use Qualcomm’s baseband until 2023. Recently, Apple is also developing its own base chips, and it is likely to use self-developed products on both mobile phone processor chips and baseband chips in the future, which is a negative factor for Qualcomm.

The ability of “gaining gold” has improved by leaps and bounds, all thanks to the status of the leader

The high growth rate of revenue also brought Qualcomm a better net profit performance in this quarter. This quarter’s financial report data shows that Qualcomm’s fourth-quarter net profit was US$2.96 billion, a year-on-year increase of 485% compared with US$510 million in the same period last year; the net profit in the previous fiscal quarter was 8.5% billion, up 248% month-on-month. Diluted earnings per share were $2.58, compared with $0.42 in the same period last year.

The 5G chip battle is full of smoke, and Qualcomm has a chance of winning

From the historical net profit performance of the past eight quarters, Qualcomm’s net profit in this quarter is undoubtedly eye-catching, both in terms of profit and year-on-year growth. Qualcomm’s management said at the fourth quarter and fiscal 2020 annual earnings conference: “QCT achieved a 20% profit margin in September, compared with the previous internal forecast of 18% profit margin, which was boosted by the fourth quarter and will be 12%. The midpoint of the monthly QCT margin is set at 26%.”

Qualcomm baseband chips benefit from its leading position in the industry and thus enjoy higher profit margins. According to statistics from Strategy Analytics, in 2019, Qualcomm’s 5G baseband chip market share reached 53%. Including the previous Qualcomm Snapdragon 855 series and the external X50 baseband. In the future, Qualcomm will produce the integrated Snapdragon 765 series and the flagship Snapdragon 865 with external X55 baseband, and the market share will further increase.

From the industry track where Qualcomm is located, the reason for the high pricing of early 5G technology is the immaturity of its technology development, and as 5G technology matures and the competitive landscape becomes increasingly anxious, the price of 5G chips is also decreasing. . According to industry sources, Qualcomm has reduced the price of the Snapdragon 765 series chips to about $40, a reduction of 25-30%, which has restored the competitiveness of some markets.

Therefore, although Qualcomm occupies more than half of the 5G baseband chip market, the price reduction may also put pressure on its future profits. Judging from Qualcomm’s historical profit performance, its net profit performance is not very stable and fluctuates greatly. Especially in the first quarter to the third quarter of fiscal 2020, Qualcomm’s net profit showed a negative year-on-year growth.

The good news is that the increase in Qualcomm’s net profit this quarter was not caused by cost reductions, especially R&D costs. According to the financial report data, Qualcomm’s total operating costs in the fourth quarter were 4.89 billion US dollars, an increase of nearly 19% year-on-year. Among them, research and development costs were 1.58 billion US dollars, a year-on-year increase of 9.9%, accounting for 32.3% of the total operating costs.

As Qualcomm and MediaTek plan to launch next-generation 5G chips by the end of 2020, both companies are increasing their orders at foundries and IC back-end service companies, according to industry sources. And this will undoubtedly push up Qualcomm’s future operating costs.

The battle for 5G chips is full of smoke, what chance does Qualcomm have?

Judging from the current market competition pattern of 5G baseband chips, Qualcomm undoubtedly occupies the leading position in the market, but it cannot be ignored that Samsung and MediaTek are also close behind. With the current 5G smartphone production capacity and sales growth, 5G mobile phone chips The competition has also become more intense, and more and more chip manufacturers have joined the battle.

The system LSI business unit of Samsung Electronics plans to supply Exynos chips to Xiaomi, OPPO and vivo next year, and there may be a situation where Qualcomm and Samsung compete for customers of OPPO and vivo chips.

In addition to Samsung, Huawei and Apple’s mobile phone processor chips are all self-developed, and Qualcomm only provides mobile phone baseband chips to them, but it is still unknown how long this deal will last.

The reason is that Huawei and Apple themselves are also trying to develop 5G mobile phone baseband chips. Once Huawei and Apple’s self-developed baseband chips are successfully developed, it may not be good news for Qualcomm, and it is very likely to lose Apple, the most important customer of Qualcomm at present. , The blow to Qualcomm will be self-evident.

The management of Qualcomm did not fail to see the dilemma, and developing more business lines in addition to 5G smartphone baseband chips has become a strategy that Qualcomm is implementing. To develop in the direction of the intelligent Internet of Things, trying to cover the chip to more intelligent application scenarios, but this track is not easy to go.

The desktop CPU market is dominated by Intel, the mobile CPU market is dominated by ARM, the DRAM memory market is dominated by Samsung, Hynix and Micron, the flash memory market is basically dominated by Samsung and Kioxia, and the analog chip market is the backyard of Texas Instruments , The high-end lithography machine is monopolized by ASML, and the wafer foundry is determined by TSMC.

In order to consolidate their own moat, chip giants are also making frequent moves. Nvidia bought ARM for $40 billion, Analog Devices bought Maxim Integrated Products for $20 billion, and SK Hynix bought Intel’s storage business for $9 billion.

To pry open a gap for survival from the iron wall built by the giants, latecomers not only need technological innovation, but also business model innovation. Although this quarter’s performance hit a record high, it seems that time is running out for Qualcomm.

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