Consumer discretionary

Qualcomm Inc’s (QCOM) Mobile Dominance Has To GIve Way To VR

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Qualcomm dominates the market for high end smartphone chips, but as growth in mobile slows the company needs to look to VR as the next big platform

Qualcomm is back at the top of the roost as the leading chipmaker for mobile phones with a name quality association that makes companies like Xiaomi, use the fact that it has a Snapdragon chip on their flagship, its main marketing gimmick. After its mistakes with the Snapdragon 810, the company has made a strong comeback with the 820 which has won laurels from the industry at large, but that doesn’t check the reality of slowing global smartphone sales. On the other hand, VR has recently exploded onto the scene and Qualcomm has already provided its 820 chips and software development kits to developers and gotten started with a move into the segment. If it’s not already heading there, virtual reality and augmented reality are segments that Qualcomm must become a central part of, if it wants to future proof its technology.

Mobile phones have been Qualcomm’s bread and butter for a long time now, but after years of exponential growth the slowdown has arrived. In 2014, shipment volumes grew 24% but in 2015 there was only 13% growth. More importantly, the entire demographic of demand shifted to lower end devices with high end phones dominated by Qualcomm’s chips feeling the squeeze from slowing sales.

 However Qualcomm is not just a chipmaker. It’s an innovator with a wealth of technology patents at its disposal which are already slingshotting it into automobiles as driverless systems take off and demand for wireless charging increases as electric cars roll out onto roads. Qualcomm creates small, power efficient, flexible systems essentially and this is why it is a perfect contender for the VR market.

The VR and AR markets are headed towards an explosion with analysts guiding for $30 billion and $ 90 billion in annual revenue respectively by 2020. 97 million of 441 million wearables sold in 2020 will be virtual reality or augmented reality headsets. Intel has already jumped into the more profitable AR market with Microsoft’s Hololens. Qualcomm however seems to be playing the longer game with partnerships in the more populated VR industry. By becoming the center of VR, Qualcomm can quickly partner with a large number of companies like Oculus which will undoubtedly move into AR. For Qualcomm, the first mover advantage of Intel is insignificant and the game is all about selling the most units. Even if it gets a fraction of the business for those 97 million units in 2020, based on its current ASPs the company could easily add hundreds of millions to its revenue. Of course that’s based on a 100 million units in 2020, but VR and AR have the potential to grow so much bigger than that.

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