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It's amazing how quickly market share in the tablet processor arena has shifted. A year ago, Qualcomm (NASDAQ: QCOM ) and Intel (NASDAQ: INTC ) were nowhere close to the top-5 rankings when it came to tablet revenue share. As of the second quarter of 2013, Intel was No. 4 and Qualcomm came in at a cool No. 5. However, while Intel's success in tablets largely depends on the unknown sell-through of Windows-based tablets (and some lower-end Android devices), Qualcomm has really nailed it this year. It has won every major popular Android tablet this year, including the Amazon Kindle Fire HDX and the Google Nexus 7. So, how did Qualcomm pull this off, and will the company's tablet success in 2013 be replicated in 2014?
The game-plan: the right products at the right time
It is usually the case that chip suppliers that can get the best product out, and do so faster than their competitors, win the design sockets. Qualcomm's Snapdragon 600 and 800 beat both NVIDIA's (NASDAQ: NVDA ) Tegra 4 and Intel's Z3000 series to market – the latter is still putting the finishing touches on its Android software stack (although the hardware is ready and currently shipping in Windows 8.1 devices). So, as has been the case in the smartphone space, Qualcomm was ready, willing, and able to supply parts before everybody else. However, credit must be given where it's due -- it wasn't just about timing.
Qualcomm's fortunate timing certainly helped, but the company's product lineup is still best-of-breed. The Snapdragon 600 offers great CPU and GPU performance (although the Tegra 4 is faster on both counts and Intel's Z3000 series is faster on CPU, but about on-par with GPU), and the Snapdragon 800 beats out both the Tegra 4 and Z3000 chips on GPU, matches the Tegra 4 on CPU, and loses to the higher end Z3000 chips on CPU. But, what Qualcomm's chips have that neither Intel's nor NVIDIA's do today, is a suite of integrated connectivity right on the chip -- which, while not strictly necessary to win the design, is yet another perk.
So, Qualcomm comes in with great silicon at the right time while its competitors suffer delays -- an easy recipe for market share gains, even though the company had very limited share in tablets during the previous year. But, that's the past. What will 2014 look like?
2014 becomes much fiercer
While in 2013, it was smooth sailing on the tablet side of things, it gets more competitive next year. NVIDIA will be rolling out its next-generation "Logan" processor, which should feature the company's "Kepler" graphics -- an architecture that is far beyond what any other mobile graphics architecture is doing today. Intel, too, will be ramping its Z3000 chips and fighting aggressively on price, and then will be rolling out its next-generation "Cherry Trail" tablet part -- which should be a big jump up in graphics and should also bring a healthy CPU improvement.
Of course, that's not to imply that Qualcomm will sit still, but the fight for designs may be much tougher, and it may have to give up some on the margins. That being said, this is offset by the fact that the underlying tablet market is still likely to grow at a very healthy, double-digit percentage CAGR over the next several years. So, while Qualcomm's overall tablet revenue is expected to continue to grow, it's likely that the company will lose share simply by virtue of a much stronger set of competitors. While this may lead to a slowdown in growth, and even a slight blow to sentiment, Qualcomm's fundamentals are sound.
Foolish bottom line
While Qualcomm really seems to be on top of the world in both phones and tablets, and while it's still likely that the company continues to be, the advent of competitive pressures does add risk. That being said, Qualcomm isn't particularly expensive at less than 14 times full-year 2014 EPS estimates. In fact, given the stability of its QTL business, and given its leverage to the very high-growth phone and tablet chip markets, it's tough to imagine that shares have too much downside. In fact, with its Q4 earnings call coming up on Nov. 6, and with its analyst day to follow shortly thereafter on Nov. 20, Qualcomm might not be a bad bet on a pullback.
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