Qualcomm, a manufacturer of telecom chips and mobile processors, announced its decision to terminate the $47 billion agreement to acquire NXP due to lack of approval from China, the key market.
US-based Qualcomm’s business would face more risks due to the saturated smartphone market in the future, says TrendForce. The acquisition of NXP, a Dutch company known for automotive and IoT chips, was part of the growth strategy of Qualcomm.
Strategy Analytics, another research firm, believes that Qualcomm’s existing strategy of expanding its industry-leading Snapdragon franchise to non-mobile markets will continue to yield good results.
IDC’s latest forecast on smartphone market does not support Qualcomm that is betting big on mobile phone markets.
IDC said smartphone shipments are forecast to drop 0.2 percent in 2018 to 1.462 billion units as compared with 1.465 billion in 2017 and 1.469 billion in 2016.
Qualcomm mainly depends on China smartphone makers such as Xiaomi, Vivo, Oppo, among others, for its revenue growth. The on-going trade war between US and China has the potential to challenge Qualcomm’s relationship with China-based smartphone companies.
The China issue assumes importance because Qualcomm has a strained relationship with US-based Apple and China-based Huawei. Samsung has its own cellular processor company to source components. China is also stepping up investment in its own semiconductor facilities through acquisitions.
Qualcomm, during the hostile bid by Broadcom, said it is hoping to win revenues from the 5G segment in coming years. But the global telecom industry is still clueless about the use cases for enterprises and individual customers.
“As the business models for 5G are not yet clear, it is uncertain whether 5G developments could lead to new replacement purchases. The market situation will depend on the attitude of telecommunications operators in the near term,” TrendForce analyst CY Yao said.
Analysts say that Qualcomm will face difficulties in reregulated markets. Qualcomm has already started renegotiating its pricing models.
Qualcomm’s lower-than-expected revenue from licensing business, QTL, may also influence the company’s profitability in the future. Qualcomm would continue to strengthen the sales of RFFE products, and to increase the market share in IoT and automotive sectors, TrendForce said.
“In the wake of terminated NXP deal, Qualcomm is set to pursue 5G NR with more vigour to boost its core mobile revenue. NXP deal would have allowed Qualcomm to accelerate its non-mobile market position,” Sravan Kundojjala, market consultant at Strategy Analytics, said.
Strategy Analytics said Apple iPhone design-loss will hit Qualcomm’s baseband volume to some extent.
Qualcomm is unlikely to be affected in terms of revenue, thanks to improved product mix with higher priced baseband-integrated applications processors. Qualcomm achieved 52 percent revenue share of the $4.9 billion cellular baseband market in Q2 2018.
Qualcomm has significantly improved its Snapdragon product mix with higher priced 600, 700 and 800 series of chips, which support advanced LTE modem features and also drive demand for Qualcomm’s RF front-end components.