The rise of QRD means that smaller companies can create cheaper smartphones, fragmenting the market in emerging markets further. This means that if companies such as Apple Inc. (NASDAQ:AAPL), Research In Motion Ltd (NASDAQ:BBRY) or Nokia Corporation (ADR) (NYSE:NOK) want to capitalize on the growth of these markets, they may have to significantly slash their margins to remain competitive.
An uphill battle for the big boys
Although Apple Inc. (NASDAQ:AAPL) has already denied rumors of a $99 iPhone, analysts still believe that the company needs a lower-priced product to remain competitive in emerging markets. Most rumors indicate that Apple could offer a cheaper iPhone in the $300 to $400 range, in comparison to its average unsubsidized price of $613. Yet even at that price range, Apple will struggle to remain competitive, especially when Chinese companies such as Xiaomi are selling Android smartphones comparable to the Samsung Galaxy S4 and iPhone 5 for approximately $250 to $300.
Meanwhile, BlackBerry has had some success in emerging markets with its touch-based Z10, but with an unsubsidized price near $600, it is still considered too expensive to achieve widespread adoption. Therefore, CEO Thorsten Heins noted that the company needs to produce a lower-end device to remain competitive. However, BlackBerry faces the same problem as Apple — it will have to aim much lower if it is serious about capturing the lower-end market share.
Meanwhile, Nokia is enjoying moderate success in emerging markets with its low-end Asha devices. The new QWERTY keyboard-equipped Nokia Asha 210 sells for an unsubsidized price of $70, and has been touted as an ideal lower-end competitor to Research In Motion Ltd (NASDAQ:BBRY)’s upcoming Q10, which features a traditional QWERTY keyboard. If the Asha 210 sells well, it may be a sobering example of how low Apple and BlackBerry need to set their prices.
Therefore, QRD could change the game substantially for these manufacturers, by leveling the playing field for the lower-end handset industry. Since the same lower-end manufacturers using QRD tend to install Android, it would be a boon for Google Inc (NASDAQ:GOOG) as well.
The Foolish Bottom Line
While QUALCOMM, Inc. (NASDAQ:QCOM)’s top line is growing at a healthy rate, its margins seem destined to decline as it aggressively expands into emerging markets. However, this might be its only viable path for future growth, and its proactive promotion of its QRD program insures that it will remain the backbone of mobile handsets worldwide. For now, demand for its higher-end Snapdragon 600 and 800 processors, which will power devices such as the Samsung Galaxy S4, Sony Xperia and HTC One, will keep its margins intact.
Considering that Qualcomm now trades at an attractive 12.7 times forward earnings after its post-earnings plunge, I think that it can easily bounce back despite slower growth forecasts and lower profits.
The article Should You Worry About Qualcomm? originally appeared on Fool.com and is written by Leo Sun.
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