With Samsung and Apple dominating the mobile device market, Qualcomm is feeling the pressure as these powerful buyers push for lower chip prices. Qualcomm (QCOM) is the leading supplier of modems and applications processors for high-end smartphones, but the company says the high end is “increasingly concentrated” and that “industry concentration leads to buying power.”
On the company’s Q4 earnings call, Qualcomm CEO Paul Jacobs said his company will not be able to sustain its recent growth rates. “Looking at fiscal 2014, we’re expecting solid growth but at a lower rate than what we delivered in the last few years,” said Jacobs. “This is partially due to the exceptionally strong year we just completed.”
Indeed, 2013 has been a very good year for Qualcomm, capped off by fourth quarter earnings of $1.5 billion on revenue of almost $6.5 billion The company said it expects to ship roughly 1.1 billion 3G and 4G devices this year. Shipments next year will be between 1.2 billion and 1.3 billion units, but a significant portion of those chipsets will be going into high-end devices made by Apple and Samsung.
“Our position at the high tier and with the big OEMs is strong, driven by modem and applications processor leadership, and is expected to remain strong through 2014,” said Steve Mollenkopf, Qualcomm’s president and chief operating officer. “The high tier continues to be increasingly concentrated, however, which impacts our product mix as well as our revenue and related operating margins.”
Keeping margins up will require cost control, and Qualcomm said it has a plan in place. Mollenkopf said that Qualcomm wants earnings growth to outpace revenue growth. He expects margins to increase throughout 2014, a change from Qualcomm’s normal pattern of higher margins at the beginning of its fiscal year.
Apple and Samsung both make their own applications processors, but Samsung still buys Qualcomm processors for many of its smartphones. Both Samsung and Apple rely on Qualcomm for LTE modems for their high-end phones.
Qualcomm said yesterday that maintaining its dominant position in the LTE modem market will require continuing innovation. “The LTE feature set required to be successful will continue to evolve at a fast pace, driven by competitive dynamics in the United States and Asia, compounded by the number of RF bands required to deliver high data rates and capacity to the consumers,” said Mollenkopf.
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