We recently had a chance to catch up with Qualcomm’s connectivity team, and were reminded of the company’s deep experience in this field. But then we thought of the many questions we have about the company’s long-term growth strategy, and we realized the company is poised at an interesting position.
On the one hand, the company’s core markets are either in steady state growth (i.e. mobile, IoT) or behind some very long time lines – auto with their multi-year product cycles and PCs where it could take years for Qualcomm to penetrate a highly established market. It occurred to us that amidst this we could construct a more bullish upside case for the company’s growth. This being 2024, we could sum up this opportunity as “AI”, but more precisely we think the opportunity rests in the growing need for compute at “the edge”.
The edge is a thorny term that means different things to different people, but in this context it means any device that handles compute that is not sitting in some cloud data center including phones, PCs, cars, embedded and industrial systems, home networking and the rest of IoT. There is a lot of market there that typically did not require much in the way of heavy-duty processors but are now starting to see the need for bigger processors. Cars are the obvious example, where we are seeing the rise of automotive processors, but even in this well explored area, there is a growing need for compute beyond the central driving-assist system, as various automotive systems start to require more compute power for things like braking, drivetrain and power.
One thing in particular caught our attention during our recent briefing. The company noted that they are seeing growing interest for their connectivity products from the makers of micro-controllers (MCUs). We had heard this before, but hearing it in this context crystalized our thinking on the subject. Qualcomm has a clear lead in the connectivity space broadly defined. They have the best cellular modems, but also leading solutions for Wi-Fi, Bluetooth, UWB and the rest of the acronyms. As we said in the podcast, Qualcomm at heart is a wireless communications company. The company was built on the back of adding more silicon content around its core cellular connectivity product. As phones went from 2G to 3G to smartphones, they needed a growing amount of compute power, which Qualcomm was able to deliver – first through the clever algorithms which made CDMA possible and then later with its Snapdragon application processors.
This next wave will be different. The company’s differentiation in connectivity is not as strong as it was in cellular – other companies make good Wi-Fi and Bluetooth. And in many cases, the compute will come from other established players. As noted above, the MCU makers need more connectivity, but they will not need Snapdragon. And we remain highly cautious about Qualcomm’s PCs efforts
That being said, this could still be the early days of a new wave of growth for the company. More and more devices will get compute, OEMs will want to connect those compute nodes to the local networks and the Internet, and they will need to be incredibly power efficient as battery life matters more to everyone. And behind much of those will be the push to add more AI to the edge, whether to reduce the load on the cloud or to add AI functionality to low level systems. Those are all forces playing in Qualcomm’s favor.
To be clear, this will take time, and it is not guaranteed to play out this way, but there is a path towards growth for the company here.
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