MW This tech giant is racing now to boost growth and reduce its dependence on Apple
By Ryan Shrout
Qualcomm sees its future in cars, laptops and the Internet of Things
Qualcomm Inc. is orchestrating an ambitious transformation that Chief Executive Cristiano Amon says will redefine its future. The San Diego-based semiconductor giant, which doubled its market capitalization from $70 billion to around $170 billion-$180 billion over the past five years, is pivoting from being a communications-focused company to one focused on broader computing.
The stakes are high. Qualcomm $(QCOM)$ faces two risks: an overwhelming dependence on the Android smartphone market and that Apple $(AAPL)$ at some point will stop buying Qualcomm modems. But Qualcomm has engineered a diversification strategy that's already showing promising results.
Finding the next big thing
Qualcomm's approach to expansion follows a four-step process that Amon detailed for investors earlier this week: identify industries with substantial addressable markets undergoing significant transitions; pinpoint the technological inflection points driving that disruption; develop or acquire leading technologies that can differentiate; and scale rapidly to capture market share.
This strategy is perhaps most visible in the automotive sector, where Qualcomm has positioned itself at the forefront of a fundamental transformation. Vehicles are evolving into software-defined computing spaces with dozens of sensors that all require real-time processing. In response, Qualcomm developed its Snapdragon Digital Chassis platform, combining silicon and software solutions. The acquisition of Arriver bolstered its computer vision and driver-assistance capabilities, resulting in a robust $45 billion design pipeline that speaks to the strategy's early success.
Another example of Qualcomm's diversification strategy is its ambitious push into the PC market. The company is targeting the emerging AI PC segment, leveraging its Hexagon NPU-dedicated AI processor technology and Oryon CPU cores acquired from Nuvia. While current shipments and revenue remain a question mark (but are likely fairly low), Qualcomm projects this product line will generate $4 billion in revenue within five years, targeting a $35 billion total addressable market for AI PC silicon.
In my discussion with Alex Katouzian, general manager of mobile, compute, XR and wearables at Qualcomm, it was clear that the company's focus will see more emphasis on commercial and enterprise markets. Microsoft's $(MSFT)$ support in promoting Snapdragon-powered devices to these organizations has been crucial, with early adopters like Citigroup (C) already demonstrating successful implementations of on-device AI capabilities.
One positive sign for future revenue increases is the rate of additional OEM design wins, from low-cost laptops to premium units. Qualcomm CFO Akash Palkhiwala, in a Q&A session with analysts, brought up this design pipeline as an indicator for what the likes of Dell Technologies $(DELL)$, HP $(HPQ)$ and Lenovo (HK:992) are planning for 2025 and 2026, and said he sees only good signals so far.
Qualcomm remains unfazed by rumors of Nvidia's $(NVDA)$ potential entry into the AI PC space with its own chip from Arm Holdings $(ARM)$, viewing it as market validation that could accelerate software and gaming ecosystem development.
Beyond PCs
Qualcomm's platforms are becoming the standard for virtual- and augmented reality devices.
Qualcomm's diversification plan also includes extended reality (XR) and industrial platforms. The success of Meta Platform's $(META)$ Ray-Ban smart glasses, powered by Snapdragon technology, has exceeded expectations. Similarly, Qualcomm's platforms are becoming the standard for virtual- and augmented-reality devices.
In the industrial sector, Qualcomm is capitalizing on the growing demand for on-device AI processing, positioning its technology as essential infrastructure for the next generation of smart manufacturing and industrial automation.
2030 vision
Qualcomm's ambitious goal is to achieve a 50/50 revenue split between handsets and its combined automotive and Internet of Things group (including PC, XR and industrial) by 2030. Having doubled its revenue over the past five years, Qualcomm now must show investors it can repeat this performance over the next five years. Yet with its clear roadmap, proven strategy and aligned leadership team, the company appears well-positioned to achieve this goal.
Qualcomm's transformation from a communications company to a computing powerhouse represents more than just diversification - it's a fundamental reimagining of Qualcomm's role in the technology ecosystem. Qualcomm now is charting its own course, targeting specific market segments where its expertise in efficient computing and connectivity can provide unique value.
Ryan Shrout is the President of Signal65 and founder at Shrout Research. Follow him on X @ryanshrout. Shrout has provided consulting services for AMD, Qualcomm, Intel, Arm Holdings, Micron Technology, Nvidia and others. He holds shares of Intel.
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-Ryan Shrout
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November 22, 2024 07:50 ET (12:50 GMT)
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