For years Qualcomm has had a licence to print money and had done all the right things at the right time. This put it in a position where almost every smartphone made around the world had Qualcomm somewhere in its insides – especially in Korea and China.
But a string of quarterly financial reports, which indicate a sharp decline in the company’s revenue growth, from 30 per cent three years ago to -14 per cent now.
One of Qualcomm’s biggest problem is MediaTek which has caught up to it and the fact its major customer, Samsung, has begun to use its own chips for new smartphones.
Qualcomm has had difficulty collecting royalties in China and was fined close to $1 billion by the Chinese government for its royalty collection methods.
In fact it looks like some companies that are holding out because China’s smartphone market saturated and they want to defer royalty payments until 2016.
Qualcomm has put a brave face on it. It said that it believes that certain licensees in China are not fully complying with their contractual obligations to report their sales of licensed products.
Meanwhile Qualcomm has been unable to come up with much that is new. It still has $21 billion in cash in the bank but is having to put a great deal of it into R&D to replicate and sustain its competitive advantage.
But its biggest problem will be competition by MediaTek MediaTek is spending a lot of money to catch up. It opened R&D offices in Bangalore, Finland and San Diego. In a year MediaTek’s LTE modems is expected to competitive with Qualcomm’s.
Its new line of chips for higher-end Helio phones will work with most carrier networks in other countries. Right now MediaTek is going through the certification process with telecoms Verizon, AT&T and T-Mobile so it can sell its phones on their LTE networks in the U.S.
Until 2013 Qualcomm controlled 95 per cent of the market. But last year its share was down to 66% of the $22.1 billion market, with MediaTek next at 17 per cent.
Next year MediaTek aims to capture more than 40 per cent of the LTE market in China, and many of China’s high-end phonemakers will switch from Qualcomm’s Snapdragon series to MediaTek’s offerings.
However MediaTek will also be raining on Qualcomm’s parade in the US and Europe as the much awaited flood of cheaper and well speced smartphones roll into the first world.
The most likely candidates are Xiaomi, Huawei, OnePlus, Lenovo and Coolpad, and most of these have plans to enter the US market soon, if they’re not already there in some limited fashion. MediaTek will be piggy backing on them.
Emerging markets such as India and Africa also present opportunities for MediaTek, but the potential profits are less than what the U.S. could produce.
But Qualcomm must be worried. Any phone with a MediaTek chip inside it is another nail in its coffin. Already there are muttering amongst its shareholders that the company should flog off its chipmaking business while it can, and just concentrate on making cash out of its patents.
