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Qualcomm hopes to win chip biz from Nokia

Posted: 18 Nov 2008     Print Version  Bookmark and Share

Keywords:chipset business  mobile phone  Mobile Internet Devices  CDMA market 

Qualcomm Inc. is hoping to win chipset business from mobile phone maker Nokia, now that the companies have at least partially settled some of their differences.

According to Richard Windsor, who tracks communications equipment at Nomura Securities, (London), Qualcomm said talks are under way, but there is no certainty Nokia will use any parts from the mobile handset chip maker.

Windsor suggested Qualcomm really only stands a chance to win chips business from Nokia in areas where the Finnish phone maker has made no investments, such as chipsets for Mobile Internet Devices (MID) or possibly for handsets that could receive MediaFLO based mobile TV.

"If MIDs take off, then Nokia will need to address this space and it is here that we think Qualcomm could see some success with its Snapdragon chipset family," suggests Windsor.

He adds that in the U.S, the mobile TV war is over and if Nokia wishes to address the segment thgere, it will need to incorporate MediaFLO into its phones.

"We think that it is extremely unlikely that Qualcomm will win any traditional base band business from Nokia within the next 5 years. This is because Qualcomm's proposition is only very attractive to those with no IP and relatively low volumes."

Nokia, Windsor adds, has a huge amount of IP and is shipping around half a billion units a year. "In this instance it makes no sense for Nokia to switch to buying chips when its scale allows it to design them itself at lower cost.

Crunching the numbers

Away from the Nokia dilemma, Windsor said Qualcomm is forecasting a 25 per cent increase in the CDMA market in 2009 driven by strong net adds from 2G and a 40 per cent replacement rate. This gives a CDMA market of 23 crore units, up 8 per cent on this year and a W-CDMA market of 37 crore units, up 39 per cent year-on-year.

"This is what supports the long term growth in revenues and earnings, the valuation and our positive view on the shares," notes Windsor.

He adds there was considerable scepticism at the Analyst Day surrounding Qualcomm's forecasts, particularly with the replacement rate.

2008 was a reasonably good year and the replacement rate fell from 50 to 42 per cent. Qualcomm suggested this will fall to 40 per cent, yet 2009 is widely expected to see a massive economic slowdown.

"We see some risk to this number but concede that the migration from 2G to 3G remains very strong given the falling cost of 3G handsets."

Windsor is more cautious, forecasting 33 crore units for 2009 , or growth of 24 per cent.

He suggests the long-term growth story for Qualcomm looks secure, but the severe inventory correction will hurt the growth in the first half of 2009.

"When the inventory stabilises, the growth in CDMA should allow revenues to continue their recent upward trajectory."

-John Walko
EE Times Europe

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