Qualcomm (NASDAQ:QCOM) recently unveiled its new Snapdragon Wear 1100 chips at Computex 2016 in Taipei. The low-power chips are designed for "purpose-built wearables" that are designed for specific low-end uses, as opposed to more-powerful chips that power full-feature smartwatches. Qualcomm has stated that the chip will be installed in fitness trackers, kids' watches, smart headsets, and other wearable accessories.

Snapdragon Wear. Image source: Qualcomm.

Expanding its lineup of wearable processors

Qualcomm already controls about 80% of the Android Wear smartwatch market with its ARM (NASDAQ:ARMH)-licensed SoC designs. Most high-end devices in that market are powered by its Snapdragon 400 SoCs -- which are also used in entry-level smartphones. Qualcomm claims that more than 100 different wearable devices are already powered by Qualcomm chips.

The new Snapdragon Wear processors were built from the ground up to be installed in wearable devices, with a heavy emphasis on power efficiency, connectivity, and motion-tracking capabilities. The first chip in that lineup was the Snapdragon Wear 2100, which was introduced in February for next-gen smartwatches. The new Snapdragon Wear 1100 complements the 2100 by extending Qualcomm's reach to more-basic devices within the Internet of Things (IoT) market.

Taking another step away from mobile devices

Snapdragon Wear represents yet another way for Qualcomm to diversify away from the saturated mobile-chip market, where it has ceded market share to cheaper challengers like MediaTek, and first-party chipmakers like Apple (NASDAQ:AAPL), Samsung, and Huawei.

Qualcomm's other chip-diversification projects include a reference design for drones called Snapdragon Flight, connected camera solutions for action- and security-camera makers, Snapdragon A-series chips for connected cars, and 64-bit data-center chips. These moves might rejuvenate its QCT (chipmaking) businesses, where revenues fell 19% annually last quarter as operating profit plunmeted 77%. Qualcomm claims that more than 1 billion IoT devices now use its chips, but it hasn't disclosed exactly how much revenue those chips generate.

Wearable and IoT chips are  much cheaper than beefier mobile ones, so sales of wearables must soar dramatically to really move the needle for Qualcomm. However, market forecasts are on Qualcomm's side -- research firm IDC expects worldwide shipments of wearables to soar from 110 million this year to 200 million by 2019, thanks to growing demand for smartwatches.

LG's Watch Urbane 2 is powered by a Snapdragon 400. Image source: LG.

Can Qualcomm dominate wearables?

Qualcomm's 80% share of the Android Wear market sounds impressive, but we should remember that Apple -- which uses its own chipset for the Apple Watch -- controlled 52% of the smartwatch market during the first quarter, according to Strategy Analytics. This means that Qualcomm's share of the overall smartwatch market is probably slightly less than 40%.

Qualcomm's rivals don't plan to let the chipmaker conquer the wearables market unopposed. MediaTek is aggressively expanding into the wearables market with chips for smartwatches, fitness trackers, and other devices.

Intel (NASDAQ:INTC), which lost the mobile market to Qualcomm, is selling wearable-focused chip modules like the SD card-sized Edison and button-sized Curie -- which is also designed for low-power, "purpose-built" wearables instead of full-featured smartwatches. Samsung recently unveiled an all-in-one health chip for wearable devices called the Samsung Bio-Processor, which does all the health tracking and monitoring on a single chip without the need for external processing.

That competition indicates that the two main challenges that Qualcomm faces in mobile chips -- cheaper rivals and first-party silicon -- could follow it into the wearables market. However, Qualcomm's first mover's advantage, the scale of its operations, and its dedicated Snapdragon Wear chipsets, should give it enough breathing room against its potential rivals.

The key takeaways

Investors should see Qualcomm's new low-end Snapdragon Wear chip as a part of the chipmaker's broader plans to diversify its QCT business. If these new investments succeed, Qualcomm could dominate the IoT market just as it did with smartphones. But to do so, it needs to first outmaneuver the same companies that challenged it in the mobile market.


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