Windows 7 Smartphones Can Give Modest Boost to Qualcomm
Microsoft (NASDAQ:MSFT) recently unveiled its new mobile phone operating system Windows Phone 7 at a launch event in New York. If Windows Phone 7 based smartphones were to gain traction, they could certainly provide some upside to Qualcomm’s (NASDAQ:QCOM) stock as the Windows Phone 7 smartphones are based on Qualcomm’s application processor called Snapdragon. Snapdragon is an application processor that gives mobile phones the computing power to run more sophisticated applications and software.
Snapdragon’s increasing presence could help Qualcomm in two ways: increasing its chipsets market share and slowing down its chipset pricing declines. Our analysis is as follows.
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Qualcomm market share benefits from Android and Microsoft smartphone OS growth
Qualcomm’s Snapdragon is extensively used in Android-based smartphones and Microsoft’s Windows Mobile smartphones, while the latest Apple (NASDAQ:AAPL) iPhone uses an A4 processor and Research in Motion’s (NASDAQ:RIMM) BlackBerry smartphones use Marvell processors. Qualcomm’s Snapdragon also competes with Nvidia’s (NASDAQ:NVDA) Tegra processor and Texas Instrument’s (NYSE:TXN) OMAP 4 chipset in the smartphone application processor market.
Qualcomm is benefiting from Android’s fast growth and could further benefit Microsoft is able to increase its presence with the launch of Windows Phone 7 in the smartphone market at the expense of Apple and RIM.
Potential upside to Qualcomm’s stock
According to Gartner, Microsoft’s operating system share among smartphones sold has nearly halved, falling to 5% in the second quarter of 2010 from 9.3% a year ago. We estimate that around 270 million smartphones will be sold in 2011. If Microsoft is able to double its market share from 5% to 10% by 2011, at the expense of RIM and Apple, it could mean that Microsoft’s operating system could be present on an additional 14 million smartphones sold in 2011, translating to 14 million additional Snapdragon processor sales for Qualcomm.
We currently estimate that Qualcomm’s market share in the CDMA mobile phones chipset market will be around 65% in 2011.
An additional 14 million Snapdragon processors could increase Qualcomm’s share to 67% by 2011, instead of the 65% that we forecast. This scenario could create an upside of 2% to the $48 Trefis price estimate for Qualcomm’s stock.
Snapdragon chipsets are priced higher than the average Qualcomm chipset. We estimate that average Qualcomm chipset pricing has declined from around $21 in 2006 to $18 in 2009, and we expect pricing declines to continue. However, Snapdragon’s increasing presence could help Qualcomm stop its chipset pricing declines.
In another recent article, we discussed that if Snapdragon were to help Qualcomm to maintain average chipset pricing in the future, there could be an upside of 2% to Qualcomm’s stock.
You can see the complete $48.12 Trefis Price estimate for Quacomm’s stock here.