Broadcom Corporation (NASDAQ:BRCM), one of the smallest players in the business, also posted rising revenues and has been expanding its reach in the baseband market. The company’s gross profit stands at 55%, while the net profit percentage is 12.06%. The net profit percentage is significantly lower than industry average. Its market cap is just $19 billion, making it one of the smallest players in the business. Also, in its first quarter results, the company posted revenue of $1.83 billion, beating market expectations. Besides operating in the baseband segment, the company has a 35% market share in the high growth wireless connectivity segment and is more attractively valued than Qualcomm. It has also announced its first LTE chipset. But since its a smaller company, it cannot provide the stability that Qualcomm offers. Qualcomm remains the leader in the baseband segment and the application processor market in which Broadcom Corporation (NASDAQ:BRCM) has a long way to go. Moreover, the margins of Qualcomm are better than those of Broadcom
The Asian Route
Like many other product markets, the smartphone business is reaching its saturation level in the United States, and the only way ahead is going to emerging markets like China and India. Qualcomm reacted early to this factor, and hence now its major chunk of sale of smartphones and chips come from these Asian markets. The Asian population accounts for more than half the world population and if there is one product that is revolutionizing these markets, it has to be smartphones. Qualcomm seems to be well positioned to reap in the rewards stemming from this major industry advantage. These markets have a flip side too, which is the need of cheaper smartphones that bring down the ASP. But this factor is thwarted by the growing demand and the race of launching expensive phones with more features than another among the handset makers.
The strategic direction
Qualcomm has worked well with its Snapdragon processors, and is expected to maintain its dominance with its Snapdragon 800, which is better than the previous Snapdragon S4 Pro in terms of performance. The top-selling smart phones, whether it’s Samsung Galaxy S4, HTC One, Nokia Lumia 925 or Sony Xperia Z have used Qualcomm’s Snapdragon Processor. Even the iPhone Mini is rumored to have Qualcomm inside it.
CDMA-based technologies are Qualcomm’s greatest IPR stronghold, but its early foray into LTE technology has also made it the market leader, signing many 4G deals with handset vendors. It is ready with its third LTE version, while other chipmakers are only preparing for their first ones. It is guiding the transition of the developed nations to the LTE 4G technology, and to 3G technology in the developing nations. Both these technologies are the new future of the telecommunications industry, and Qualcomm will always have the first-mover advantage. It has a 97% share of the expanding LTE modem market and about half the share of the baseband market.
Also, the near future in mobile technologies is interconnected devices and near field communications. Qualcomm has been the first to integrate these technologies. Moreover, adding such features results in more expensive phones, leading to higher ASPs and hence higher royalties for the company.
