Qualcomm's Bet on 5G Pays Off
April 17 2019 - 5:33PM
Dow Jones News
By Tripp Mickle and Asa Fitch
Through more than two years of takeover threats and legal
strife, Qualcomm Inc. trained its focus on the future promises of
5G. That fixation is paying off so far.
The chip maker's lead in fifth-generation wireless technology
persuaded the Trump administration last year to block a hostile bid
by Broadcom Inc. out of national-security concerns. It helped
muscle Apple Inc. to the table to settle a patent-royalty dispute
on Tuesday and it contributed to Intel Corp.'s decision to
discontinue developing rival 5G modem chips for smartphones.
The success of Qualcomm's strategy -- accelerate spending on 5G
while staring down existential threats -- has catapulted the
company's stock up 38% since Monday's close to $79.08, hitting
highs not seen since 2014.
"They positioned their company to execute on this specific
opportunity," said Charles Lemonides, portfolio manager of
ValueWorks LLC, which has roughly 5% of its holdings in Qualcomm.
"It's not like they hedged their bets. They were all about this
technology roadmap."
While the Apple deal removes a major overhang, it doesn't clear
away all of Qualcomm's challenges.
Qualcomm moves from fending for its life to needing to fulfill
sizable new chip supply for a demanding tech giant. The 5G chip
Qualcomm released in 2019 was designed to work alongside its own
processor with 4G LTE functionality. For Apple, it will need to
deliver a standalone modem chip with 5G capabilities that can work
with the iPhone's custom processors.
And Qualcomm isn't out of the legal woods yet, either. It still
faces an antitrust challenge from the U.S. Federal Trade Commission
that could upend its patent-royalty business, which had accounted
for half of its profit before its legal tussle with Apple erupted.
A ruling from a federal judge in that case, which wrapped up in
late January, could come any minute.
It also needs to finish development of its first processor with
built-in 5G capabilities, a product it demonstrated at Mobile World
Congress that will be crucial to helping the company maintain its
leading position as a provider of smartphone chips world-wide.
"5G is in it infancy," said Patrick Moorhead, president of the
technology firm Moor Insights & Strategy. "To make it go
mainstream, Qualcomm has to deliver these chips on time and at
quality."
A Qualcomm spokesman declined to comment on those
challenges.
5G promises to supercharge smartphones and unlock the power of
connected devices, homes and cars by transferring data at faster
speeds. Qualcomm envisions a future where everything will be
connected -- manufacturers can put chips in every part of their
machines, farmers can put internet-connected sensors on livestock
-- all powered by its chips.
Qualcomm's emphasis on 5G had its share of doubters. Some
analysts said Apple didn't need Qualcomm's chips. Other analysts
said it would be years before 5G would be widespread enough to save
Qualcomm from the threats it faced.
Chief Executive Steve Mollenkopf ignored critics and added more
than $500 million in spending on 5G, racing to keep pace with an
industry pushing to bring the wireless technology to market in
2019, a year faster than expected. He faced withering criticism. In
its takeover pitch, Broadcom said Qualcomm failed to earn money on
4G. "Why will 5G be any different?" it asked.
Qualcomm used 5G to lobby the Trump administration to reject
Broadcom's more than $100 billion offer for its business a year
ago. In December, it demonstrated the speed and potential of its
first 5G modem chips inside Samsung Electronics Co. smartphones at
a Qualcomm event in Hawaii.
The exhibitions made clear that Qualcomm was leading the pack in
5G, and ultimately might have prompted Intel to exit the business,
said Srini Pajjuri, an analyst at Macquarie Group.
"Qualcomm had a better technology and a better modem, and their
roadmap is much better for 5G," Mr. Pajjuri said.
An Intel spokesman declined to comment.
Without Qualcomm, Apple might have struggled to get 5G chips
into the iPhones it launches late next year, analysts say. With the
legal settlement behind the companies, however, Apple's roadmap to
5G becomes clearer.
Jeff Helfrich, a portfolio manager at Dallas-based Penn Davis
McFarland Inc., said the Apple deal returned Qualcomm to a status
quo of dominance in the mobile-chip industry, but it didn't solve
the problem of a cooling global smartphone market or erase the
challenge of diversifying into new business areas.
"The wireless market has been their go-to market for years," he
said. "They tried to branch out into displays and other markets,
and none of it really stuck. They have a great business and great
franchise, but the question is, 'What's next?' "
(END) Dow Jones Newswires
April 17, 2019 17:18 ET (21:18 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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