Qualcomm Gives The Wireless Industry A Reason To Celebrate

Is this the end of bulky power-hogging LTE smartphones? Quite possibly. Qualcomm (NASDAQ:QCOM) recently launched its latest product, a dual-core S4 mobile System-on-a-Chip (SoC), in its Snapdragon line of processors. ^[1] Not only is S4 significantly faster than other dual-core chipsets as well as Nvidia’s (NASDAQ:NVDA) quad-core Tegra 3 processor in many aspects, but it is also the first ever to integrate LTE capabilities on the same chipset. This paves the way for more widespread adoption of sleeker and power-efficient LTE smartphones, as carriers such as Verizon (NYSE:VZ) and AT&T (NYSE:T) increase their LTE footprint across the country.

See our complete analysis for Qualcomm stock here

LTE Gets A Shot in The Arm

4G LTE is the buzzword now-a-days with carriers such as Verizon and AT&T rapidly deploying their LTE network in more markets, widely promoting their LTE smartphones, and are also incurring huge capital expenditures for these upgrades. Even Sprint, which is yet to start deploying its first LTE market, has guided for almost $6 billion in capital spending on LTE infrastructure this year. See the chart below to see the scale of jump in Sprint’s capital expenditures.

Until now LTE smartphones were bulky and highly power-inefficient as the chipset technology was not mature enough to provide integrated cellular modems with LTE capabilities. Moreover, the chipsets were built on a 40nm manufacturing process that made power-efficient designs with LTE difficult.

The S4 addresses both these concerns. Not only does it have a LTE modem integrated on the chipset but it is also built on a 28nm process. Qualcomm has long been a proponent of integrated SoC designs and by being the first to bring to market an integrated 28nm LTE modem, it has removed two of the most significant bottlenecks in widespread LTE adoption.

Sleeker and more power-efficient LTE smartphones should ensure at least partial recovery of the huge costs being incurred by the carriers. Higher LTE speeds will also see subscribers increasingly using data-intensive applications on their smartphones. This will drive data revenues, thereby increasing ARPU levels for the carriers over the coming years.

Integrated Processors Will Be Back in Fashion

As for Qualcomm, it will be back to where it can truly make an impact. Growing demand for dual-core processors and LTE-enabled chipsets, both of which were relatively new to the market and therefore not yet part of a standard integrated solution, had caused a short-term trend shift in favor of standalone processors.

Although Qualcomm did manage to broaden its portfolio to cater to the short-term shift in demand, it allowed other competitors to catch on. But we did not see the trend lasting long. (see Qualcomm’s Standalone Processors Help Exploit Short-term Shift in Trend) With the first integrated LTE modem making its way to the marketplace by the end of Q2, the trend should soon shift back in favor of integrated processors, and Qualcomm will again be leading the way.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Why Qualcomm’s Snapdragon S4 has the competition on the defensive, ExtremeTech, February 22nd, 2012 [↩]