Qualcomm Throws Up Some Big Numbers, Sees Double-Digit Growth Ahead
With 300 million smartphones sold worldwide during the first six months of this year, Qualcomm CEO Paul Jacobs is feeling bullish about industry trends that are carrying the wireless giant to record revenues, profits, and mobile chip shipments.
Jacobs told financial analysts who gathered at the company’s San Diego headquarters yesterday he expects Qualcomm will continue to show double-digit growth in both sales and earnings (compound annual growth rate) over the next five years. (Qualcomm usually holds its annual analyst day in New York, but lower Manhattan was still mopping up after Hurricane Sandy.)
Last week, Qualcomm (Nasdaq: QCOM) reported record annual revenues of $19.1 billion for the fiscal year that ended Sept. 30, a 28 percent increase over sales of nearly $15 billion in fiscal 2011. The wireless giant also posted a record annual profit of $6.1 billion, a 43 percent jump over the $4.2 billion earned in fiscal 2011, and record shipments of 590 million MSM chipsets.
Jacobs charted the company’s outlook for fiscal 2013, saying Qualcomm’s growth is being driven by unprecedented worldwide demand for mobile devices and wireless bandwidth, fueled by an expanding cornucopia of smartphones, tablets, laptops, and other mobile computing devices.
The company also has been working to spur demand even higher by stepping up its technology innovation in its core areas of expertise: wireless computer processing units, graphics processing units, digital signal processors, modems, network connectivity, sensors, and displays. “If you look at it, there is just a lot of stuff happening in every one of these categories,” Jacobs said. “We’re not just waiting, we’re going out and driving innovation in these sectors.”
Qualcomm has spent about $20 billion on R&D over the past 10 years, which has helped the company claim the lead in application processors, along with the CPUs, GPUs, DSPs, radio frequency chips, and 3G/4G/LTE technology, according to Steve Mollenkopf, Qualcomm’s president and chief operating officer (COO).
Mollenkopf says he considers fiscal 2012 the year when Qualcomm began to pull away from the pack in wireless chip design, saying, “that’s because we showed the industry a really differentiated chip.”
Qualcomm views its “system on a chip” approach as a competitive advantage, because the company controls development of the key blocks of technology, including the radio, modem, processors, and other technologies. The company says mobile device manufacturers are now shipping more than 70 devices equipped with Qualcomm’s Snapdragon processors, another 500 Snapdragon-equipped devices have been announced, and more than 400 designs are in development.
“Our strategy in one sentence is to try to set the bar for the industry,” Mollenkopf told the analysts. By owning the key technologies embedded on the Snapdragon chip, Mollenkopf said, “We have the ability to make key tech tradeoffs in the combination of technology blocks. We can put it together in a package that would be difficult to replicate, and we can do it across different tiers.”
Another key advantage is the technology Qualcomm uses to stay connected. As Mollenkopf put it, “Mobility is increasingly about the modem and connectivity,” he said. Complexity represents another leverage point, since Qualcomm designs its flagship processor to connect to more than three dozen radio bands and across a variety of wireless networking standards. “It’s a very complicated problem.” Mollenkopf said, but managing that complexity also enables Qualcomm to separate itself further from its competitors.
“We are essentially trying to use our scale to drive a performance level that would be very difficult to follow,” Mollenkopf said. “Unless you’re a large AP player it will be harder and harder to keep pace with us at the performance levels where we’re operating.”
Qualcomm leaders said they also have been working to address “the 1,000x data challenge”—by combining improvements in network efficiency, small base stations, and radio spectrum to help prepare by a 1,000-fold growth in wireless data traffic.
To accomplish that kind of growth, the company has been developing wireless femtocell base stations, about the size of an average smartphone. The low cost, small size, and easy deployment will help to the “extreme densification” of cellular networks possible.
A massive deployment of densified networks could carry most of the traffic needed to increase data traffic by 1,000x, Jacobs said. A key technical hurdle, however, is addressing radio interference created by small base stations in dense markets. It’s a problem that Qualcomm has been working to solve for the past decade.
Nevertheless, Jacobs says, “When it comes to small cells, I’m completely convinced this is the way the network gets rolled out over the next five years.”