Qualcomm sees faster adoption of 5G by consumers
Chipmaker Qualcomm forecast today that global smartphone manufacturers will ship 450 million 5G handsets in 2021 and deliver 750 million 5G phones the following year. For next year, the company expects manufacturers to deliver 200 million 5G smartphones. 5G is the next generation of wireless connectivity and will provide download data speeds 10 times faster than 4G. HD movies that currently take minutes to load on a phone will take just seconds using 5G, and the faster data speeds will help create new services, businesses, and industries similar to the way that rideshare companies like Lyft and Uber used 4G LTE to become multi-billion dollar companies.
According to Reuters, Qualcomm says that consumers will adopt 5G faster than they did 4G because a wider range of chips available for the new service will lead to lower pricing for consumers. And faster adoption by consumers should also lead to bigger profits for Qualcomm; a wider range of smartphones will be packed with more expensive 5G modem chips, such as the Snapdragon X55. Unlike the Snapdragon X50, which supports ultra-high-band mmWave spectrum, the Snapdragon X55 is compatible with both mmWave and sub-6GHz airwaves. If Qualcomm's estimates pan out, growth in shipments of 5G phones will be 125% in 2021 followed by a 67% hike the following year. Based on these figures, the smartphone market could get a boost as consumers replace their 4G LTE phones with 5G models. Last year, global shipments of smartphones declined by 4%.
It has been a roller-coaster year for Qualcomm
This has been quite a year for Qualcomm. 2019 started off in court as the FTC sued Qualcomm over the latter's controversial business practices (for example, its "no license, no chips" policy). Then in April, just as a multi-billion trial between Apple and Qualcomm was wrapping up, the two firms kissed and made up ending a multi-year feud. Apple was so concerned about where it would get 5G modem chips from that it had turned to Intel. But not exactly sure whether Intel could deliver the component on time, Apple ended up paying Qualcomm a reported $4.5 billion to settle all legal issues between the two giants. Apple received a six-year licensing agreement (with a two-year option) and a multi-year chip supply deal. News of the settlement lit a fire under Qualcomm's shares taking them from $56 on April 11 to $89 by May 3rd.
But on May 22nd, Qualcomm's fortunes took a turn for the worse after Judge Lucy Koh (star of the iconic Apple v. Samsung trial) ruled against the chipmaker and in favor of the FTC. And while Qualcomm was able to get an appeals court to stay the ruling until the firm exhausts its legal options, the company could be forced to change the way it sells chips to phone manufacturers. For example, Qualcomm charges royalties based on the value of an entire phone, not just Qualcomm's components. While this figure has been capped by the company, it means that manufacturers are essentially paying royalties to the chip maker for parts that Qualcomm has nothing to do with. The judge also took the company to task for not licensing its standard-essential patents (SEP) to rivals. SEPs are patents that companies need to license so that their products can meet industry standards. Thus these patents are supposed to be licensed on a fair, reasonable and non-discriminatory (FRAND) basis.
By May 24th, Qualcomm's shares had dropped from $89 to $66 during a three week period as investors took profits following the court ruling. Since then, investors have been anticipating the surge in 5G shipments expected over the next few years and the stock is now back to $88. But throughout this roller-coaster year for Qualcomm, some bad news always seems to be on the horizon. While Apple does plan on using Snapdragon 5G modem chips for the iPhone for at least the next couple of years, the company did end up buying Intel's smartphone modem chip business for a cool $1 billion and plans on using its own 5G modem chips as soon as 2022. That move by Apple will cost Qualcomm a fortune in revenue.
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