Microsoft kicked off the AI race when ChatGPT was launched on 30 Nov 20222 and the Artificial Intelligence (AI) genie was let loose. On 21 May 2024, Microsoft was again first off the blocks to bring AI to a PC near you. Vital to its plan are chips manufactured by Qualcomm that allow AI processing to be done instantly on device rather than in gigantic data centers far far away.
This could be the beginning of a historic upgrade cycle in PC/laptop and mobile devices. At the same time, we are seeing a proliferation of Internet of Things (IOT) devices and the incorporation of AI into all kinds of gadgets and electronic devices.
In this brave new world, Qualcomm will be a significant player in enabling electronic objects to become a) Connected & b) ‘Intelligent’.
Why AI at the Edge matters?
Currently, AI computation happens at the Cloud 95% of the time and only 5% at the Edge.
The Edge is defined by Qualcomm as ‘on-device processing for a smartphone or IoT device, or it could mean processing in the edge cloud or close to a base station for a cellular network provider’.
Every time you use ChatGPT, you have to wait as AI ponders over your question. That’s because your query is being processed by a gigantic Microsoft Azure datacenter, backed no doubt by powerful Nvidia H100 Hopper chips or the even more powerful GB200 Grace Blackwell chips.
Qualcomm, and Apple, looks to change this by ushering in a world where the AI processing happens on your edge device – mobile or laptop. You benefit as a consumer because of reduced latency. This translates to instant responses or image processing done in seconds. As the data is not sent to the Cloud, you also have more privacy – something that Apple will consolidate on given its reputation as an upholder of consumer privacy.
The world at large also benefits from AI at the Edge as datacenters become more energy hungry. Goldman Sachs estimates planetary scale increases in energy consumption, driven by datacenters.
Data centers will use 8% of US power by 2030, compared with 3% in 2022.
Goldman Sachs
And then there are use cases where ‘decisions’ need to be made instantly. A robotaxi can’t afford to dawdle in the middle of the road, waiting for the AI Model in the cloud to tell it to take a left turn. Similarly, Industrial applications need instant AI processing to ensure thousands of machines and bots work in harmony on a factory floor.
The Edge/Market Size of Opportunity
AI processing happens only 5% of the time at the Edge but it could be 50% by 2028.
Schneider Electric, a French multinational company specializing in digital automation and energy management, believes that AI computing happening on the edge will increase from 5% to 50%.
Techopedia
As with all scenarios where the new technology is unlike anything ever seen before, estimates of the potential market are difficult to fathom. Qualcomm has given some high level numbers.
The opportunity at the connected intelligent edge is significant. For Qualcomm, it expands our addressable market by more than seven times to approximately $700 billion within the next decade.
Qualcomm President and CEO Cristiano Amon, November 2022 (link)
So what part of this vast emerging market could Qualcomm capture? An independent estimate puts it as high as 15%.
“Edge computing brings real-time data analysis closer to devices and users, enabling innovations in 5G, Internet of Things, artificial intelligence (AI), etc. The market is projected to reach $250 billion by 2024. Qualcomm aims to capture 15% of the edge computing market”
L.E.K. Insights
A Reality Check in 2024 – Qualcomm Financials
Jun 2024 is the perfect time to look at Qualcomm financials. Currently Qualcomm doesn’t have any big AI-driven revenues. We are at the brink of Microsoft’s AI PCs being launched in the second half of 2025 & AI mobile phones coming out shortly. The impact of AI revenue should reflect in H2 FY24 and FY25.
In Q2 FY24, Qualcomm CDMA Technologies (QCT) accounted for $8 billion of the $9.4 billion revenues or 85% of the revenues, the rest being Licensing. The QCT revenue streams are broken down into the following heads (millions):
- Handsets – $6,180
- Automotive – $603
- IoT – $1,243
While the first Qualcomm mobile model with a Neural Processing Unit (NPU) for AI processing capabilities was launched in Oct 2023, it would be safe to say that AI wasn’t the selling point for these models. This means that there wasn’t much revenue by way of AI in the $6.2 billion revenue earned by Handsets.
Similarly, a third of the Automotive revenues were mainly driven by ADAS and the remaining could have some AI revenues but insignificant for now.
IoT again doesn’t have AI revenues worth mentioning as most of the demand was for ‘Industrial IOT’ applications.
We can now draw a line in the sand for pre-AI era revenues and look at how AI could boost Qualcomm’s earnings going forward.
From where could the AI dollars gush in?
Let’s look at the 4 key revenue streams for Qualcomm and determine the potential revenues from AI at the Edge for Qualcomm.
1. Mobile Devices
The first Neural Processing Unit (NPU) appeared as early as 2017 in a Huawei phone! This was followed soon by Apple and Qualcomm. An NPU does AI stuff on the phone itself. People didn’t care much about NPUs in the pre-ChatGPT era but in 2025, it could be the deciding factor.
The absence of a ‘killer App’ means there are no mad scrambles to get the latest mobile device. However, Counterpoint Research believes that the market for AI phones could be as high as 40% by 2027 with 80% of the spoils going to Qualcomm in the immediate future!
- “We anticipate that GenAI smartphone shipments will surpass half a billion units and attain 40% market share by 2027.”
- “By 2027, we expect GenAI smartphone shipments to reach 522 million units, growing at a CAGR of 83%.”
- Qualcomm is likely to capture over 80% of the GenAI smartphone market for the next two years. MediaTek is likely to catch up with its Dimensity 9300-based devices.
Source, Dec 20, 2023
Opportunity size in Mobile devices
Typically around 1.3 billion smartphones are sold globally every year. Around 25% of these are Apple.
In Q4 2023, Qualcomm had 22% of the smartphone units sold versus 37% sold by Mediatek. However, during the same period, Qualcomm revenues from the sale of smartphones were 19% of global sales versus Mediatek’s 15%!
So Mediatek sells 68% more units but its Revenues are lower than Qualcomm. This indicates that Qualcomm models have a higher Average Selling Price (ASP) versus Mediatek, driven by higher sales in the marquee segments. Apple of course, runs away with 50% of the global smartphone revenues while selling only 25% of the units. (Source)
In the absence of a compelling reason for buying AI smartphones (‘killer App’), we can expect a gradual shift to AI phones over the next few years as people look to upgrade their devices. The AI smartphone market will most likely resemble the current market for high-end devices. In such a scenario, Apple and Qualcomm devices will rule the roost for a few years. MediaTek eventually catches up and forces Qualcomm to move to higher price point models.
In the first scenario envisioned by Counterpoint Research, Qualcomm could end up with as much as 50% of the smartphone revenues sold versus the current 19%. This highly optimistic scenario forecasts a doubling of revenues in 2-3 years time from the mobile business alone!
(Assumptions are a) 3% growth rate of overall mobile market b) 40% market share of Gen AI phones from 2025 onwards c) 80% of the AI market share being captured by Qualcomm till 2026 and then it comes down to 40% of the market due to competition d) non-AI market share of Qualcomm to remain at around 20% e) Apple to retain its market share in both AI and non-AI segments )
A more realistic scenario assumes a gradual shift to AI phones as part of the natural upgrade cycles. As these are premium phones, Qualcomm could see incremental revenues of 8-14% as it rules the roost in the top tier models.
(Assumptions are based on the premium charged by currently available top AI smartphones over the available next non-AI model.)
A third scenario where a killer App finally emerges means all bets are off the table. Such a scenario will parallel the early years of the iPhone launch. The incumbents would most likely retain their ground given the chip processing and RF (Radio Frequency) front end capabilities needed for these devices. These incumbents (Qualcomm, Mediatek etc) would stand to benefit greatly as consumers proactively toss out their existing phones to get the shiny new AI phones laced with the Killer App.
As of today, such a killer app is not on the horizon so we will limit speculation about such an event.
2. Laptops – ‘Wincomm’ in the making
With an almost Jobs-ian flourish, the CEO of Qualcomm Cristiano Ammon unveiled the long awaited ‘Windows on Arm’ laptops during the Snapdragon Summit 2023 held in Maui, Hawaii. These laptops would finally take on Apple in its own game.
With a battery life of 12-15 hours and a performance that matched M2 and M3 Apple chips, Windows had finally got the specs to take on Apple. The timing couldn’t be better for Microsoft as it looked to steal a march ahead of its Cupertino rival, right at the cusp of AI PCs taking off.
So what changed for these new Microsoft laptops/PCs after a decade of distant runner up status vis-a-vis Apple? Several factors make the new laptops compelling:
- ARM architecture – The chips in the new laptops are based on the ARM architecture used by Apple as opposed to the traditional Windows PCs/laptops that use Intel’s x86. ARM processors are significantly more power efficient than x86, which means longer battery life, less heating etc.
- NUVIA acquisition – To beat the best, you have to be the best. The best laptops are made by Apple. So Qualcomm acquired NUVIA, started by ex-Apple execs, in March 2021.
The Oryon CPU, which powers Snapdragon X Elite’s lineup of new laptop models, was designed by Gerard Williams, the co-founder of Nuvia. His claim to fame – he designed the Apple M1 chip that revolutionized laptops! - Custom Oryon CPU Cores – The Oryon CPU was custom built by the former NUVIA team using the ARM license. This allows Qualcomm to customise the performance and energy requirements as opposed to using standard Cortex cores sold by ARM.
(This has kicked off a legal battle between ARM and Qualcomm and the entire PC/Laptop market waits with baited breath for the outcome.) - 45 TOPS performance – To ensure the new Copilot+ PCs incorporate AI smoothly, Microsoft has set a threshold of 40 TOPS for the Neural Processing Unit (NPU). The NPU handles the AI workload on a device. Qualcomm stands head and shoulders above the competition with a 45 TOPS as opposed to the Intel and AMD offerings.
(“Intel’s newest Meteor Lake chips are rated at 34 TOPS total, with its NPU rated at just 11 TOPS. AMD’s newest XDNA Ryzen AI chips are touted as delivering 39 TOPS, with the NPU offering 16 – Source “ - Microsoft Exclusivity deal – Rene Haas, CEO of ARM, confirmed that the long-rumored Microsoft-Qualcomm exclusivity agreement will expire in 2024. This will throw the doors open for the lucrative Windows on Arm PC market to the rest of the competition.
While Intel and AMD currently do not have competing products that meet the Microsoft threshold of 40 TOPS in NPU performance, furious R&D effort is underway to catch up. Traditional Qualcomm nemesis Mediatek is also eyeing the space and partnering with the ‘Godfather of AI’ Nvidia to get a foot in the door.
The Wintel era in the 1980s and 90s saw two behemoths shake hands to dominate the PC market – Microsoft with its Operating System/Windows suite and Intel with its CPUs. If Qualcomm retains its edge in NPU processing and battery life, we could see the emergence of WinComm.
Opportunity size in PCs/Laptops (WinComm)
Qualcomm’s entry into the PC/Laptop space is an exciting event and opens up a revenue stream worth billions of dollars annually. The global market for ‘chips’/processors for the PC/Laptop market is estimated to be $115 billion in 2023 (Source). Excluding the Server segment (approx 40%), this market is estimated at $70 billion USD.
Another way to look at the potential market size is to look at the revenues earned by the key players in this duopoly – Intel and AMD. In FY23, Intel earned around $29.3 billion (‘Client Computing Group (CCG)’ segment) and AMD earned around $4.7 billion (‘Client’ segment). Excluding around $1.4 billion of ‘discrete GPU’ Gaming revenue for AMD and $0.4 billion for Intel, we arrive at a market of $32 billion.
From mid-FY24 onwards, Qualcomm will start taking a bite out of this $32 billion pie. How big a chunk will it be? It took AMD six years to capture 20% of the laptops/PC market from Intel (the first-gen Ryzen PC chip was launched in 2017). Arguably, AMD had a tougher battle at hand as its chips were still based on the x86 architecture developed by Intel as far back as 1978.
(Fun Fact – It is not clear if AMD pays Intel any royalties as AMD had developed the 64 bit extension of x86. )
Qualcomm’s new chips are based on ARM, not x86, and the more appropriate analogy would be when Apple introduced the ARM-based M1 chip in 2020 (MacBook Air model). This shook the entire market.
“All of a sudden, the potential of Arm-based laptops was realized. There were powerful laptops that outclassed the previous Intel-based models, while dramatically extending battery lives.”
Source – TechRadar
The impact of the new ARM models could be seen over the next few years for Apple.
- Market Share – Apple’s market share in the ‘Global PC market’, which includes laptops but excludes tablets, went from 6.9% in 2018 to 9% in 2023 – a 30% jump!
Even more startling was the 41% gain in the Tablets market (Q3 2018 – 26.6% vs 37.5% in Q3 2022). - Revenues – Over a 5-year period from FY18-23, Apple saw a 15% increase in the Mac (PC/Laptop) sales but an incredible 51% sales in Ipad.
(FY23 Sales – Mac $29.4 billion, Ipad $28.3 billion | FY18 Sales – Mac $25.5 billion, Ipad $18.8 billion)
Apple operates in the Premium segment of the PC/Laptop market and caters to a devoted segment of existing users who swear by Apple. Qualcomm’s market share gains could be higher in the non-Apple Windows-on-Arm market where users don’t have any brand loyalty. Ever seen a Lenovo tattoo?
What is the future of this new market? We have 2 scenarios.
What’s the impact of the above 2 scenarios that could play out over the next 5 years?
- 20% Market Share / the AMD way– Like AMD, the Qualcomm chips could slowly creep up to about 20% of the Windows PC market share with over the next 5 years. This would add $22 billion in revenues across the 5 years. In FY2028, it could earn around $8 billion USD in PC revenues, increasing the Market Capitalization by $40 billion (applying a Price/Sales ratio of 5). The current Market Cap is around $200 billion for context.
(Assumptions are a) reaching 20% market share of ARM PCs/Laptops in 5 years starting 2025 b) capturing 4% of the market every year till it hits 20% c) Windows PC market grows 6% annually)
- 50% market share by 2029 – Based on the Canalys report scenario of 30% market share by 2026 and 50% market share by 2029 scenario by ARM CEO, we could see an additional $37 billion dollars accrue over 6 years. In FY29, the PC/Laptop sales could add $60 billion in Market Capitalization.
Intel has maintained an 80% market share even after very competitive offerings from AMD in the x86 based Windows PC segment. As Qualcomm is the first off the blocks in ARM-based Windows PCs, we could see Qualcomm maintain market dominance as well in this extremely optimistic scenario.
(Additional Assumptions in this scenario are a) 80% market share of ARM PCs/Laptops to Qualcomm in 2025 and 70% from 2026 onwards as new models from Intel, AMD and Mediatek hit the market b) Windows PC market grows 6% annually)
3. Automotive
With all the excitement around the AI phones and Windows on ARM PCs/Laptops (topped with the AI cherry), it would be easy to miss the Automotive segment. This segment generated just $600 million in Q2 FY24 (approx 6.4% Revenues). But with a ‘Design Win Pipeline’ of $45 billion in potential revenues, this is an exciting new opportunity opening up for Qualcomm.
McKinsey projects that more than 90% of vehicles sold in 2030 will be connected, up from 50% today. Around 75 million cars were sold globally in 2023 and this will be a big market opening up for Qualcomm. Tony Seba, considered a prophet of technology, had long maintained that cars will eventually become mobile or computers on wheels.
Tesla brought this prediction to fruition with its giant all-encompassing touchscreen & premium features that can be turned on from an app such as Sentry mode/ Bioweapon Defense Mode/ Dog Mode. But the most remarkable feature is the Autonomous Driving capability like FSD (Full Self Driving). Goldman Sachs estimates that Tesla earns $1-3 billion annually from FSD alone! All of this is made possible by Over the Air (OTA) updates, just like a mobile/computer.
Tesla’s China rivals like BYD, Xpeng, and of late even Xiomi, have taken a leaf out of Tesla’s playbook and integrated even more ‘cool’ features. Traditional automakers cannot afford to go the Blackberry way and need to partner with Technology companies to match the offerings of Tesla/China Auto players.
Enter Qualcomm with its a) ADAS/Level 2 Autonomous Driving solutions and b) Cockpit solutions (Snapdragon® Digital Chassis).
Qualcomm’s Automotive Offerings
Qualcomm offers the following solutions in its Automotive Offering:
- ADAS/AD – this includes Safety and Standard ADAS and Level 2 Autonomy
- Cockpit – the Snapdragon® Cockpit Platform includes ‘a comprehensive set of cloud-connected platforms for connectivity and telematics, computing, driver assistance etc.
- C-V2X – Cellular-vehicle-to-everything (C-V2X) technology
- Car-to-Cloud – provides ‘connected services platform for dynamically configurable, software-defined vehicles’
- Connectivity & Positioning – offers
- Cellular 5G\4G & Wi-Fi & Bluetooth connectivity
- Positioning (GPS) and Satellite connectivity
- Powerline Communications
- EV Charging
- Two-Wheelers – new solutions for 2 wheelers
Around 1/3 of the $45 billion dollar pipeline is for ADAS solutions with the rest going to the Cockpit and Connectivity solutions.
Stealing a march on Competition
Qualcomm’s closest competitors in the Automotive division are Nvidia and Mobileye (owned by Intel) besides the traditional ADAS (Advanced Driver Assistance Systems) companies. And with time, it seems like Qualcomm is gaining a bigger share of the pie from its competitors.
Let’s first look at the actual revenues from auto-related sales of Nvidia, Qualcomm and Mobileye.
We can see that Qualcomm has shown far greater growth in its revenue than the other two.
Automotive Revenue, FY21-23 (all figures in USD millions)
| Company (millions, USD) | FY2021 Revenue | FY2022 Revenue | FY2023 Revenue | 3 Year Growth (FY21-24) |
| NVIDIA Auto Division | 536 | 566 | 903 | 68% |
| Qualcomm Auto Division | 975 | 1,372 | 1,800 | 85% |
| Mobileye | 1,386 | 1,869 | 2,079 | 50% |
Next, let’s look at a more important metric – the declared ‘Pipeline’. We can again see that Qualcomm is gaining market share, especially against Mobileye.
Automotive Pipeline Revenue, FY21-24 (all figures in USD millions)
| Company (millions, USD) | FY2021 Pipeline | FY2022 Pipeline | FY2023 Pipeline | FY2024 Pipeline (Projected) | 3 Year Growth (FY21-24) |
| NVIDIA Auto Division | 8,000 | 11,000 | 14,000 | 15,000 | 88% |
| Qualcomm Auto Division | 10,000 | 30,000 | 30,000 | 45,000 | 350% |
| Mobileye | 3,000 | 17,000 | 17,000 | 7,400 | 147% |
Opportunity size in Automobiles
Qualcomm’s pipeline is expected to materialize over a 6-7 year time frame but is not guaranteed.
“The design win pipeline reflects the current estimated future size of awarded automaker programs, based on forecasts provided directly by automakers and Tier-1 suppliers.”
Qualcomm Press Release
Disclaimer notwithstanding, there are signs that the acceleration in ‘Design Wins’ will continue to be converted into revenues. The Qualcomm Leadership gave the following points during the Q2 2024 Qualcomm Inc Earnings Call.
- “We’re growing faster than the addressable market and remain on track to achieve more than $4 billion of automotive revenues in fiscal ’26”
- “we expect QCT Automotive revenues to grow by low double-digit percentage quarter-over-quarter as the increase in our design win pipeline continues to materialize into revenue. “
- “So as you’ll recall, the last number we had given was $30 billion in September — about 18 months ago, September ’22. The updated number that we just provided is $45 billion of design wins. “
Currently Automotive segment is around 5% of Revenues but growing at a scorching pace of around 40% annually! In FY30, we could see around $15.4 billion in auto revenues alone in the unlikely event that these speeds are maintained. This adds $77 billion in Market Capitalization.
A more realistic scenario would be to assume that the Design Wins of $45 billions gets converted into revenues over the next 6 years. Here Qualcomm grows at 40% till FY26 and generates $4 billion in revenues as confidently projected by the CFO in the latest earnings call. After that, revenues increase by a more realistic 20% YOY till FY30.
In this situation, FY30 auto revenues will be around $13 billion, adding $65 billion in Market Capitalization.
4. Internet of Things (IOT)
The IOT chip market is already significant and expected to grow even further.
Source
- The global market for edge computing technologies is estimated to increase from $46.3 billion in 2022 to $124.7 billion by 2027 at a compound annual growth rate (CAGR) of 21.9 percent from 2022 through 2027.
- “In manufacturing, where there are approximately 15 billion connected devices globally”
- “…data generated by IoT devices alone expected to reach 73.1ZB (zettabytes) by 2025.”
Qualcomm is the number one ranked company in the Global Internet of Things (IoT) Chip Market according to Mordor Intelligence, ahead of Intel and Samsung.
IOT Products & Solutions
Qualcomm has a dizzying array of products in the IOT segment – 47 at the last count. It mainly manufactures System on Chips (SOCs). As Qualcomm IOT devices are meant to be ‘intelligent’, its SOCs contain the following in one integrated chip:
- Wifi
- Camera
- Display
- Video Playback Codecs
- Interfaces (USB/PCIe/Ethernet/HDMI/HSIC)
- CPUs
- AI Engine
- Operating System (OS)
These IOT chips find uses in a wide range of industries. Qualcomm’s strategy is to provide a solution for the Industry need, which it calls a ‘Platform’. It also sells individual components of the Platform separately as needed by the client. Given below are the Industries served by Qualcomm and the Platforms associated with each Industry.
- Energy & Utilities – the ‘The Qualcomm® Energy Platform’ comprises:
- Smart Sensors
- Smart Meters
- Edge Gateways
- Utility Pole Tilting
- Logistics & Tracking – the Qualcomm® Logistics Platform consists of:
- Industrial Handhelds
- Aware Tracking
- Edge Gateways
- Utility Pole Tilting
- Retail & Payments – The ‘Qualcomm® Retail Platform’ contains:
- Payments devices
- Kiosks & Vending Machines
- Industrial Hand Held Scanners
- Robotics & Automation – The ‘Qualcomm® Robotics Platform’ Portfolio contains RB1, RB2, RB3, RB5 chips for various uses cases.
- Smart Cameras – are designed for the following uses
- Dash Cameras
- Enterprise Security Cameras
- Video Collaboration
- Smart Homes – contains solutions that find application in Appliances, Home Security, Lighting etc.
All the Qualcomm IOT products catering to the above industries can be categorised as:
- Qualcomm Connected Systems (QCS) – Products for IOT applications except Robotics
- Qualcomm Robotics (QRB) – Primarily for Robotics use
- Qualcomm Connected Mobile (QCM) – Products that require cellular connectivity, can be attached to QCS products as needed
Fun Fact – NASA’s Ingenuity Mars Helicopter used Qualcomm Flight technology (part of Robotics Platform’ Portfolio). The Ingenuity Mars Helicopter operated on the surface of Mars from 2021 to 2024
What is Qualcomm’s edge at The Edge?
The world will soon be at the convergence of two major technological waves – the ‘proliferation’ of connected devices & Artificial Intelligence (AI). Qualcomm foresees a future where connected devices at the edge will become ‘Intelligent’. This development is termed the ‘Connected Intelligent Edge’ by Qualcomm. The President and CEO Cristiano Amon describes this as:
We are rapidly moving toward a world where everyone and everything can be intelligently connected. The proliferation of 5G, advanced processing and AI will enable billions of smart devices at the edge to be connected to the cloud 100 percent of the time, creating the Connected Intelligent Edge.
Cristiano Amon, Qualcomm CEO
Qualcomm will be uniquely positioned to benefit from this Technology wave due to its:
- History in telecommunication/connectivity technologies (such as CDMA which effectively brought about the mobile phone era)
& - Strengths in AI computing for mobiles and laptops on device
As we saw earlier, Cristiano Ammon believes that the Connected Intelligent Edge market will be $700 billion over the next decade. This number includes PCs and Mobile devices as well but IOT is expected to become a significant share of the Connected Intelligent Edge in a decade.
In this burgeoning market, Qualcomm is already identified as a leader by Mordor Intelligence. The key players in the IOT chipset market according to Mordor Intelligence are:
- Qualcomm Technologies Inc.
- Samsung Electronics Co. Ltd
- Analog Devices Inc.
- Intel Corporation
- STMicroelectronics
Qualcomm has the following advantages which make it ideally suited for IOT Chip leadership
- Wireless Connectivity – In Q2 FY24 alone, companies paid Qualcomm $1.3 billion to use Qualcomm licensed technologies. Even rivals like Apple that stopped using Qualcomm chips still have to pay Qualcomm for using its Radio Frequency (RF) and Modem technology.
- CDMA – Qualcomm pioneered the CDMA technology that laid the foundation of the mobile phone revolution
- Wi-Fi – Qualcomm played a key role in developing and standardizing multiple generations of Wi-Fi, including the upcoming WiFi 7
- Bluetooth – Strengths in Bluetooth® audio and connectivity based on the existing portfolio of devices
- Qualcomm AI Hub – The launch of Qualcomm AI Hub enables developers to create AI apps across all Snapdragon/Qualcomm products – from drones, mobiles, robots to laptops. As AI Inferencing moves to Edge devices, development of Apps with AI ability will usher the next era in Mobile and PC/Laptop devices.
Nvidia’s moat is often attributed to the omnipresence of its proprietary CUDA language that enables developers to code for Graphic Processing Units (GPUs). While it is still early days for the recently launched Qualcomm AI Hub, a developer platform can soon gain ground and become an Industry standard. - Power Consumption – Qualcomm’s flagship products are used in mobile phones, an industry that is particularly conscious about battery life. This is the second inherent strength that Qualcomm brings to the table (first being connectivity). In the laptop/PC segment, Qualcomm’s ARM-based technology has resulted in laptops that last for 15 hours in real world setting without being plugged in!
Qualcomm brings this same ability to IOT devices as well. For example, the recently launched QCC730 in the IoT segment has 88% lower power consumption than previous generations.
The following technology trends could see an additional tailwind for Qualcomm.
- Digital Twins – While the Metaverse hasn’t lived up to its promise/hype, the ‘Industrial Metaverse’ is already being adopted by various industries. Leading the charge are companies like Nvidia (Omniverse) and Siemens (Xcelerator).
An often over-looked part of Digital Twins is that they should be ‘live’ versions of the object. Enabling this requires sensors connecting the Digital Twin with the real-world entity. These sensors should stream information continuously to keep the Digital Twin ‘updated ‘current’.
The updating of a Digital Twin will need Wireless Connectivity via 5G, Ethernet or Wifi. The connectivity solutions provided by Qualcomm address this market. - 5G vs WiFI Migration – Smart factories and warehouses rely on Ethernet and Wifi, besides 5G. A possible trend could be 5G replacing Wifi in smart manufacturing set ups. This will benefit Qualcomm, as explained below by one of the executives.
But that will change with 5G, we think, and large enterprise customers will start to migrate their Wi-Fi deployments onto 5G. That’s also what Qualcomm wants to happen – because 5G can enable a variety of [applications]. But it’s something that requires enterprises to build cellular knowledge, and [build] the ecosystem – which is the transformation we need to happen with 5G. It will happen, but it will take time
Source
Opportunity Size in IOT
Qualcomm’s growth in the last few years has been lackluster in this space as the global IOT market itself emerges from “the macro factors impacting the industry”. The expectation Qualcomm has set with Analysts is to see ‘QCT IoT revenues to ‘grow sequentially by low-to-mid single-digit percentage’.
Most estimates about the growth of the IOT industry vary between 14-25% over the next decade. Almost all analysts expect Qualcomm to be a key player in this space. Qualcomm has been incredibly quick off the blocks, as we can see from the following examples:
- Qualcomm has already shipped over 350 million dedicated IoT chipsets
- It has also launched the ‘world’s first integrated 5G internet of things (IoT) processors that support four major operating systems’ (QCS6490 and QCM6490 products launched in 2023)
- 47 IOT Products and Platforms targeting key Industries are already being sold
While the immediate future is seeing tepid growth, AI could soon transform the IOT landscape. We can reasonably expect Qualcomm to match the 14-25% CAGR projected growth of the IOT industry. Modelling a higher rate of growth at this point will be needlessly optimistic. That said, we will continue to watch this space and look for valid reasons to bump up our growth estimates in this sunrise industry.
14% growth – If we take the lower end of the 14-25% IOT estimated growth, we could see a cumulative revenue of approx $45 billion by FY30 (2025-2030). In FY30, this adds $50 billion in Market Capitalization (from a revenue of $10 billion from IOT, at Price/Sales of 5x).
25% growth – Assuming 25% of the projected revenue growth, we are looking at FY30 revenues of $16 billion from IOT, potentially adding $80 billion in Market Capitalization (from a revenue of $16 billion from IOT, at Price/Sales of 5x).
It’s not all sunshine – The Risks
While this article focusses on the emerging revenue streams for Qualcomm, there are key risks that must also be taken into account.
- Concentration risk – China accounts for around 60% of Qualcomm’s sales. Vietnam and South Korea combined are 20% of total sales. This is not noteworthy in itself as smartphone manufacturing happens mostly in the 3 countries above. This concentration does expose Qualcomm to geo-political risks though.
- Sanctions & Chip Wars – US has prevented Nvidia from selling its cutting-edge AI chips to China. This was followed shortly by China banning some Micron chips for critical infrastructure projects. Micron estimated that the impact of the ban would be ‘low double-digit percentage of its total revenue’.
The prevailing climate of bans/sanctions/prohibitions remains an overhang over all companies with major China exposure. - Apple diversification – In 2010, Apple used its first chip designed in-house called A4 in its smartphone and moved away from using Samsung SOCs. However, despite massive investments, it still hasn’t been able to replace Qualcomm modems within their SOCs.
While Apple is expected to continue to use Qualcomm 5G Modems till 2026, there are frequent reports that Apple is on the cusp of a major Modem breakthrough.
Qualcomm leadership has made it clear that it doesn’t expect any 5G Modem revenues from Apple beyond 2026.
Apple still generates 20% of Qualcomm’s revenues according to J.P. Morgan analyst Samik Chatterjee. The breakup is 14% from QCT and 5% from QTL, which is more ‘safe’ as it is related to use of Qualcomm Technology Licensing.
The eventual loss of significant Apple Revenues is the proverbial Damocles sword hanging over Qualcomm’s stock. - MediaTek – Snapping at Qualcomm’s heels for over a decade, MediaTek finally overtook Qualcomm to become the largest smartphone chipset vendor in 2020 with around 30% of market share.
Since then MediaTek has consolidated its lead and now commands 37% of the market with Qualcomm at 22% in Q4 2023.
Qualcomm has been able to maintain its premium pricing and still earns more Revenues than MediaTek (19% of global sales versus MediaTek’s 15%). Qualcomm’s profitability is even higher reflecting in the Gross Margins (55% vs 49%).
MediaTek is not resting on its laurels. It lagged in 5G phones for a while but has again overtaken Qualcomm. It has also started moving into the premium segment with very competitive offerings.
Taking a leaf from Qualcomm’s book, MediaTek has revealed plans to enter the AI PC/Laptop and Auto markets. - Huawei – The release of the Mate 60 flagship phone by Huawei stunned Apple, TSMC, Qualcomm, ARM, the US Government and the entire smartphone industry, all at the same time!
- Apple’s market share fell to 24 percent in 2024 as Huawei became the number 2 smartphone manufacturer in China.
- Kirin 9000s is the chip powering the Mate 60 phone and it was developed by a Chinese company SMIC. Typically, the chips for the highest grade phones are made by TSMC. Even Samsung uses Qualcomm-designed chips manufactured by TSMC despite having its own foundry (or ‘Fab’).
The development of such an advanced chip by SMIC must have raised a few eyebrows in TSMC. - The US Government had imposed sanctions that prevented export of advanced Technology to China and yet SMIC has manufactured a 7 nm chipset – at the cutting edge of chip manufacturing. This is all the more puzzling as the Dutch giant ASML cannot sell its EUV machines to China and it is hard to imagine how the chip was created without EUV tech.
- Qualcomm used to manufacture the chips/SOCs for Huawei and stands to lose considerably with the development of the Kirin 9000s chip. Mediatek will also lose out as Huawei eats up the market share with its in-house designed chips.
“According to TF International’s superstar analyst Ming-Chi Kuo, Qualcomm is the “big loser” from Huawei’s ability to have its homegrown Kirin chips produced.” Source
- Apple’s market share fell to 24 percent in 2024 as Huawei became the number 2 smartphone manufacturer in China.
- ARM Litigation – In the world of semiconductors, lawsuits are common given the use of patented technology. The ARM-Qualcomm lawsuit is regarding the use of Nuvia designs. Yes, Nuvia is the same company founded by former Apple execs and Qualcomm’s secret weapon in developing chips for the AI PC market.
ARM believes that its intellectual property was licensed to Nuvia and expired when Qualcomm acquired Nuvia. Qualcomm believes otherwise. Windows and the entire PC industry are hoping for a quick outcome. - Cyclical Industry – The semi conductor and the mobile phone markets are cyclical in nature. All key players were saddled with mounting inventory after the excesses of the pandemic era slowly wound down. Signs of a revival appear imminent but the cyclical nature of the industry remains a dampener for investors.
Honorable mentions
This analysis doesn’t include potential upsides from markets like VR/AR (Virtual/Augmented Reality) or the possible entry into the Data Center CPU market.
Qualcomm powers Meta’s offerings related to the metaverse such as the Meta Quest VR headset and its Ray-Ban Stories smart glasses.
The Nuvia acquisition also gives Qualcomm a foot in the door for AI inferencing in the Data Center market. This will bring Qualcomm again in competition with Intel and AMD in the Data Center CPU market. (Nvidia is expected to continue to dominate the GPU market in Data Centers.)
If you peer behind the curtains of any gadget that uses 5G connectivity, you will possibly find a Qualcomm chip. Remember the Humane pin? It was powered by Qualcomm’s Snapdragon series of chips.
This diversification away from mobile phones is a part of Qualcomm’s strategy – to enter the $700 billion Total Addressable Market (TAM) club.
“Amon’s message to investors is that the company’s $100bn total available market will grow seven times this decade as Qualcomm diversifies.”
Source
Conclusion
Let us sum up the scenarios above, assuming low, medium and high growth till FY30.
(All scenarios have priced in a loss of Apple revenue at 20%. Details of the 3 scenarios are covered under each Revenue segment.)
| Revenues – FY30 ($ billions) | Low Revenue Growth | Medium Revenue Growth | High Revenue Growth |
| Phones | 30.5 | 42.1 | 56.9 |
| PC | 0.9 | 9.0 | 12.7 |
| Auto | 3.3 | 13.0 | 15.4 |
| IOT | 6.4 | 10.1 | 16 |
| $41 billion | $74 billion | $101 billion |
Based on the projections above, Qualcomm’s revenues could grow at a CAGR of 2% in the most pessimistic scenario. A reasonable outcome could be to expect revenues to grow at a CAGR of 12.8% till FY30. Under very favorable conditions, Qualcomm could grow at 18.8% every year till FY30. A dividend of 1.5 – 2% (depending on the share price) will be the sweetener to this deal.
For a considerable period, Qualcomm traded at around $110, which ignored the multiple upsides from emerging segments such as IOT and Auto as well as AI PC/Laptops. Over the past two quarters in FY24, Qualcomm has returned to the path of growth after a painful 3-year wait for Covid-induced inventory excesses to wind down.
The current share price at $180 prices in the many upsides fairly. It also factors in some of the dark clouds like loss of Apple revenue and increased competition from a hungry MediaTek.
In a world that is becoming increasingly connected and ‘intelligent’, Qualcomm could even surpass the most optimistic scenario modelled above. Qualcomm is a company for the future but it is also one of the companies that is making the future.
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This is a game-changer for me.
Muito obrigado!}