Qualcomm(QCOM)

In the past decade, PC makers emphasis on the performance of the individual computer. Such as, faster CPU, bigger RAM, more storage...etc. However, this process has reached its limit, the CPU released this year may be a few nanoseconds faster or a few nanometers smaller than last year. Most people no longer care if it’s Pentium, Core 2 Duo, Xeon or whatsoever.

The future of end-user device MAY BE, MID, Smartbook, Tablet, Smartphone, Thin Client, AIO PC...etc. I am not sure what form factor will lead the way yet, but one thing for sure is that the average prices of these devices are going down especially when the Cloud Computing era is coming.

Your device is not fast enough? Fine, the Cloud will support you with its computing power. Need more storage to store your movies, music, and data? You can rent as much as you want in the Cloud. You can even play WoW, Crysis, type of games through your browser with OTOY or Gaikai’s services as long as you have fast internet connection.

Past & Now: Qualcomm is the leader of 3G technology and possibly in 4G as well. It Q210 results were better than the market expected, but Q310 forecast was not as good as expected. Most people probably had already known these, and I believe that these are just short term problems which would soon be solved. Other than these, how is Qualcomm different from other chip makers? Intel, Nvidia, AMD, and Qualcomm all have been working hard on their chip business. For instance, Intel is the king of computer chips, it makes CPU, chipsets, USB, and almost all chips, and it’s been trying to get into the computer GPU business, and mobile phone CPU business. AMD & Nvidia are also trying to cross their chip borders.

Qualcomm, on the other hand, has been the king of 3G chips. And is working its way up to the CPU business in both mobile phone and computer markets, HTC, Google, Toshiba, Lenovo, Sony Ericsson, and Acer have already used Snapdragon in their products. Which I think is more successful than Intel trying to get into mobile phone market using Atom. Okay, Qualcomm’s chip business is doing somewhat better.

What really differentiate Qualcomm from rest of other chip makers is Mirasol. Qualcomm started working on this MEMS technology based panel about 2 years ago. This will first be used with E-readers probably 3Q or 4Q of this year. Rumor has it that Amazon Kindle maybe using Mirasol to replace E-ink since Mirasol may already be able to mass produced with full color. Is that all? E-reader? No. Although Mirasol do well in displaying full color STATIC pictures, it still needs a lot of work if we want to watch videos on Mirasol display. Once this can be done, Mirasol could be displaying anywhere from E-readers, computers, mobile phones, street signs/advertisement…etc. (For those who don’t know about Mirasol, this technology has two main advantages over others. It consumes less energy than most displaying technology, which means we don’t have to charge it all the time. Second, it is visible under sunlight so when we carry our mobile devices, we can see the screen anywhere, not just indoors.)

To sum up, Qualcomm’s been doing well in its core business, and 2 major new products it’s been developing seem to outshine its competitors. If it’s only working on “Chip” business, the ASPs are just going to drop quarter after quarter. The better way to increase its overall ASP would be through products in another segment. In it’s case, panel. Panel costs around 20~30% of a laptop, and Chips are around 30~40%. If Qualcomm is only working on the chip business, the most it can obtain is 40%, and shrinking each year. Now that Qualcomm’s working on both Chip and Panel business, it has larger scope of market potential than other chip makers. Most Chip makers can’t make panels, and most panel makers can’t make chips. That’s why Qualcomm is one of the dreamers.

Can you price dreams? It’s probably very difficult. But what I think is that, as long as the dream’s still there, the downside risk is low in the long run.