The big fear surrounding Qualcomm's (NASDAQ:QCOM) chip division is that a competitor will come in and drive margins down, at least in the high end of the market (the low end of the market is already swarming with competition such as MediaTek and Allwinner). While many players are capable of designing competent applications processors, there are very few companies that are able to build integrated world-class modems and apps processors. It seems that Qualcomm will continue to have this advantage going forward following the disclosures that Intel (NASDAQ:INTC) made at its analyst day.
Intel's SoFIA will not play at the high end
At Intel's investor meeting, the company announced that it would be doing a low-end integrated apps processor and 3G baseband for late 2014 known as SoFIA. This would essentially integrate the company's low-end 3G modem with an Atom core with all of it built on TSMC's (NYSE:TSM) manufacturing process. Unfortunately for Intel, and very fortunately for Qualcomm, Qualcomm's low-end parts will not only feature tighter integration (Wi-Fi, Bluetooth, GPS, etc.), but they will probably be more competitive come the 2015 time-frame that the LTE version of SoFIA.
More troublingly is that Qualcomm continues its aggressive integration schemes at the high end of the market, too. While integration of connectivity and multicomms isn't strictly necessary at the high end (particularly as some handset players like the flexibility of discrete parts), it is a selling point that Qualcomm tends to use very effectively to win the designs that matter. While an excellent two-chip platform solution with Merrifield or Moorefield could displace Qualcomm in some sockets, investors should keep an eye out to see whether this actually happens.
What about modems?
Intel announced that it would be launching its XMM 7260 modem during the first half of 2014. This is a category 6 (300 Mbps downlink speeds) LTE-Advanced modem with just about all of the trimmings – TD-SCDMA, TD-LTE, carrier aggregation, and more. On paper, it looks to be a device that should be pretty competitive with Qualcomm's recently announced MDM9x35. However, Qualcomm's discrete category 6 modem comes with a number of key features (CDMA2000 support, which is required for Verizon/Sprint) and is built on TSMC's newer 20 nanometer process for baseband and 28nm for RF (Intel's baseband and RF are both 28 nanometer).
It looks almost like a toss-up here. Qualcomm's solution will probably be more competitive, but if Intel has a very strong applications processor and prices its solution competitively, Intel could either stand to outright gain share against Qualcomm or simply force Qualcomm to lower its prices. That being said, until the market sees evidence of material design win momentum, sentiment around Qualcomm (and its underlying earnings) will be quite robust.
Foolish bottom line
Intel is getting much better, but it's still not quite there. 2013 was a year where the company saw very little in the way of compelling smartphone chip launches, but 2014 promises to be better. That being said, given Intel's poor execution track record in this space, and given how deeply entrenched Qualcomm is with all of the key handset OEMs from both an apps processor and modem standpoint, it is unlikely that Qualcomm investors will see any material change in the smartphone apps processor landscape next year.
While Intel and NVIDIA will rev up their tablet efforts, Qualcomm is still in the early stages of its own ramp, meaning that it will probably grab more of the pie – just at a slower rate as others move in.