VALUATION HIGHLIGHTS
- Mobile Device Chipsets constitute 83% of the Trefis price estimate for Qualcomm's stock.
- Mobile Device Royalties constitute 16% of the Trefis price estimate for Qualcomm's stock.
WHAT HAS CHANGED?
Q1 FY'25 Earnings
Qualcomm posted a better-than-expected set of Q1 FY'25 earnings. While revenue rose 18% year-over-year to $11.7 billion, earnings saw a considerable jump, rising 24% to $3.41 per share. The smartphone market has picked up a bit following a post-Covid-19 lull, and Qualcomm, in particular, is benefiting from a wave of flagship smartphone launches by Chinese brands.
Note: Qualcomm's FY'24 ended on September 29, 2024. Q1 FY'25 ended on December 29, 2024
Apple's New 5G Modem
Apple's new iPhone 16e features an Apple-designed modem, the Apple C1, replacing Qualcomm’s chipsets. Apple's entire lineup will likely move towards its own modems in the coming years. Although Apple’s transition is likely to be somewhat gradual, the effect could be quite pronounced on Qualcomm’s margins, as Apple’s devices typically demand cutting-edge technology and higher-end components. To be sure, this risk has been known for some time, but it continues to present a downside to Qualcomm’s financials.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are key drivers of Qualcomm's value that present opportunities for upside or downside to the current Trefis price estimate for Qualcomm:
Mobile Device Chipsets
- Qualcomm Mobile Device Chipset Revenue : We currently forecast Qualcomm's chipset revenue will grow from about $33 billion in 2024 to about $48 billion by 2031. However, if the metric grows to over $60 billion, our price estimate could have a 15% upside.
Mobile Device Royalties
- Royalty Rate: We currently forecast that Qualcomm's royalty revenues will grow from $5.6 billion in FY'24 to about $7 billion in FY'31, driven by its strong position in 5G as well as its move to work with Chinese manufacturers. However, if revenues remain flat over the long run, due to litigation or other pressures, our price estimate could decline by about 15%.
For additional details, select a driver above or select a division from the interactive Trefis split for Qualcomm at the top of the page.
BUSINESS SUMMARY
Qualcomm designs and sells advanced semiconductors, including Snapdragon processors for smartphones, AI chips, automotive solutions, and Internet of Things devices. The company earns revenue via its chip sales as well as licensing royalties from its extensive portfolio of wireless patents, including 5G, 4G LTE, and Wi-Fi technologies. Customers include leading smartphone makers such as Apple, Samsung, and Xiaomi. Qualcomm is also expanding its presence in the AI computing, automotive, and industrial IoT space.
Our financial model is based on Qualcomm's fiscal year, which ends in September.
SOURCES OF VALUE
Qualcomm derives over 80% of its valuation from its mobile mobile chipset business.
KEY TRENDS
4G to 5G transition could open up opportunities
The wireless industry transitioning from 4G to 5G, and Qualcomm appears to have a lead in this space. While the transition to this technology could benefit Qualcomm's licensing business, the chipset operations could stand to gain more in the interim, as 5G devices generally require a tighter coupling between the various components, potentially enabling Qualcomm to sell more related components including power amplifiers, filters, RF transceivers, and antenna tuners to OEMs.
Pressure on Qualcomm Royalty Rates
Qualcomm charges royalties on each mobile device sold based on its technology, and one-time licensing fees from mobile chipset vendors to use its proprietary technology. Royalty rates have always been a debatable issue, and the tussle between mobile device vendors and Qualcomm has escalated, as is evident from an increasing number of lawsuits against Qualcomm.
