If you have a cell phone or mobile device, you've likely come into contact with Qualcomm (NASDAQ:QCOM) before. The company's technologies proliferate the tech landscape with Qualcomm holding lucrative patents related to 3G, 4G, and LTE technology, to name just a few.

As mobile devices make their way to the wrist, Qualcomm is in an enviable position where it can leverage its long-standing position as a go-to supplier for the likes of Apple and Samsung.

In the following video, Fool tech analyst Nathan Hamilton discusses his recent trip to International CES 2015 where tech companies put their newest offerings on display. Notably, Mr. Hamilton dives into how Qualcomm is quietly building a position in a burgeoning smartwatch market.

SEAN O'REILLY:

Greetings, Fools. Sean O'Reilly, here, with the one and only Nathan Hamilton who, I am sorry to say, just got back from CES in Las Vegas while I was stuck, here, in cold and snowy Washington, D.C.

NATHAN HAMILTON:

How was it?

SEAN O'REILLY:

It was not pleasant.

NATHAN HAMILTON:

Yeah, my trip was great.

SEAN O'REILLY:

Yes, there were snow days. There was slush. There was traffic accidents everywhere. And you were looking around at the future of technology in the desert.

NATHAN HAMILTON:

I got some good pictures. Saw some cool tech. It was a fun trip.

SEAN O'REILLY:

How many people attended this thing?

NATHAN HAMILTON:

I don't know the exact numbers, but…

SEAN O'REILLY:

Because I heard these rumors that it was outgrowing Las Vegas…

NATHAN HAMILTON:

Yes. I think from the official quote — and once again, I can't say for sure — I think it was 160,000 or 170,000. The rumor's out there's only 150,000 rooms in Vegas. I can tell you the cab lines were packed.

SEAN O'REILLY:

Oh, wow. At the airport?

NATHAN HAMILTON:

Yes, absolutely.

SEAN O'REILLY:

Yes, it sounds about right. So, I'm sure you saw a ton of great stuff. There were drones. There were belts that tighten themselves for you. All kinds of stuff. But a lot of our Foolish readers are dying to know. Arguably smartwatches are the next big wearable thing and also, arguably, we're probably in the first inning of this thing playing out because only 3 million smartwatches were sold last year.

But one of the companies, and one of the interesting things you came back with was Qualcomm and their positioning in the smartwatch market and how that's shaking up. I have to admit I was a little bit surprised, so please give us a little bit of background on Qualcomm and how they fit into the future of smartwatches and wearable tech.

NATHAN HAMILTON:

I think it's important to understand how Qualcomm is participating because, like you mentioned, you weren't aware of how involved they are in smartwatches. Really, Qualcomm's history is all in mobile, 3G, and so forth. They license their patents out to pretty much every OEM out there. If you've got a cell phone, it probably has some sort of Qualcomm technology built into it.

So, Qualcomm makes its money from licensing out these patents. It's for Wi-Fi connectivity. It's for Bluetooth connectivity. 3G. 4G. LTE. All of these — Qualcomm has some sort of related patent.

SEAN O'REILLY:

And correct me if I'm wrong. Something like 70% of their business comes from just licensing this stuff out and getting a [crosstalk 00:02:10]…

NATHAN HAMILTON:

Just ringing the cash register.

SEAN O'REILLY:

There are worse businesses to be in.

NATHAN HAMILTON:

Yes, it's definitely a good place to be in. I mean, the good thing about it is they're leveraging that experience and moving it into smartwatches specifically.

SEAN O'REILLY:

For sure. What else can you tell us about how, exactly, they fit into this? Because you visited their booth. You talked to their product specialists. What did they have to show you?

NATHAN HAMILTON:

I got a couple of images. Grabbed my camera. Took some pictures of smartwatches that Qualcomm is…

SEAN O'REILLY:

They didn't tackle you when you were taking pictures?

NATHAN HAMILTON:

No, no. If there's one thing — they want you to take pictures…

SEAN O'REILLY:

Okay…

NATHAN HAMILTON:

…and talk about their products. That's what they're there for. So, looking at how they are involved. First off, the Snapdragon 400 processor. That's in the Samsung Gear S smartwatch. Essentially what they did is they took a low-end processor that they include in their low-price phones, or OEMs include in their low-price phones, and moved it into a smartwatch.

SEAN O'REILLY:

Okay.

NATHAN HAMILTON:

It's one of their lower… I shouldn't say lower quality, but it's not meant for a heavy computer [or] any tasks that really require a lot of processing power.

SEAN O'REILLY:

Well, really early in the smartwatch game, would you say, just broadly, smartwatches are nowhere near as advanced as our phones? They're probably going to be more tethered to them and that will be their purpose?

NATHAN HAMILTON:

Yes. I read a lot of articles from other industry followers after CES. Some of them commented on wearables — smartwatches in particular. I believe Harrison Weber with VentureBeat had an article. It was like he took pictures of 59 smartwatches on his wrist, and his big takeaway is, "Hey, this stuff is cool, but it's not there yet." The technology isn't 100% there because you have to look at it. The biggest thing is how you manage the power on your wrist. You've got a tiny battery. Do I have to charge it every eight hours like some people have found…

SEAN O'REILLY:

Right…

NATHAN HAMILTON:

…with their Samsung watches? It's not feasible. That doesn't make a watch useful for me and you to wear.

SEAN O'REILLY:

Right. Okay. Seems to back, obviously, the technological line-ups between cell phones and the smartwatches. Smartwatches are basically not advanced, at all, compared to a cell phone.

NATHAN HAMILTON:

They're advanced, but not where they could be.

SEAN O'REILLY:

Right. So, obviously Qualcomm's positioning in the cell phone market lends itself to them being a big player in the burgeoning of smartwatches. What does this mean for a Qualcomm shareholder?

NATHAN HAMILTON:

Right now, being that smartwatches aren't at the point where they could be eventually or where many people believe it can be, it doesn't mean a whole heck of a lot. Like you mentioned before, their licensing portfolio on mobile phones…

SEAN O'REILLY:

Billions of dollars, here.

NATHAN HAMILTON:

Yes. We're talking huge, huge numbers. And you mentioned also before [that] 3 million smartwatches were shipped in 2013. Now, if you break down the numbers, what does this actually mean for Qualcomm's revenue?

I went through some details, and I hope everyone can follow along as I'm going through here. Qualcomm sells the Snapdragon 400. Estimated cost — just thrown out [with] odd numbers — about $10-15.

SEAN O'REILLY:

Okay.

NATHAN HAMILTON:

So, in 2013, if Qualcomm had 100% share of the smartwatch market, which we know it doesn't…

SEAN O'REILLY:

Right…

NATHAN HAMILTON:

…in the best-case scenario, 3 million times about, on the high end, $15 … we're not even talking $100 million.

SEAN O'REILLY:

We're talking about a rounding error.

NATHAN HAMILTON:

Exactly. So, right now, not a huge thing. Cell phones [and] mobile — that's really the driver for Qualcomm. But…

SEAN O'REILLY:

Twenty years ago…

NATHAN HAMILTON:

…yes…

SEAN O'REILLY:

…their huge businesses were…

NATHAN HAMILTON:

…exactly…

SEAN O'REILLY:

…tiny.

NATHAN HAMILTON:

…and if you look at cell phones 10 years ago, Qualcomm was just getting started and it drove their business. Will smartwatches get to that point? I won't speculate on that, at all…

SEAN O'REILLY:

Right.

NATHAN HAMILTON:

Certainly it could be a driver of revenue going forth, but it's not the biggest driver at this point. It's not the most important thing. But it's very important to understand how Qualcomm is a player.

And it's beyond processors. They provide Wi-Fi connectivity for many watches. They provide the Bluetooth solutions. And this isn't just in watches. They provide Wi-Fi for GoPro in their cameras, as well.

SEAN O'REILLY:

Oh, man.

NATHAN HAMILTON:

So, there's a lot of markets trying to fit their processors or whatever their hardware products are into smaller and smaller spaces. Qualcomm could do well there.

SEAN O'REILLY:

Very good. Well, thanks for visiting CES and thank you for sharing with us.

NATHAN HAMILTON:

Thank you.

SEAN O'REILLY:

Thanks for listening and Fool on!

[End]

Nathan Hamilton owns shares of Apple and Qualcomm. Sean O'Reilly has no position in any stocks mentioned. The Motley Fool recommends Apple and GoPro. The Motley Fool owns shares of Apple and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.