The communication equipment industry is a large sector, making up both business and government agencies. There is heightened competition among the telecom companies that can provide 3G technology, 4G LTE devices, and application for smartphones and tablets.
When QUALCOMM, Inc. (NASDAQ:QCOM) announced that it will supply Samsung with its Snapdragon processor for the latest Galaxy smartphone, it made me wonder when the company’s dominant position as a supplier of chips for smartphones and tablets will end. Below, I will explain why its diverse customer base, combined with the worldwide adoption of smartphones – along with the continued growth of its chip shipment, will allow QUALCOMM, Inc. (NASDAQ:QCOM) to continue its dominance in the sector.
Diverse customer base
Over the past few years, Qualcomm has acquired a variety of customers to improve its margins in the communication equipment sector. Customers such as Apple, Samsung, Research In Motion Ltd (NASDAQ:BBRY), and Microsoft Corporation (NASDAQ:MSFT) have allowed Qualcomm to expand its chipset business, generate royalties from its CDMA business, and strengthen its investments in the LTE sector.
However, QUALCOMM, Inc. (NASDAQ:QCOM)’s success has attracted competition. Rival companies are introducing LTE chips in both developed and emerging economies. Qualcomm has taken steps to stay ahead of the competition through the development of products like the best-in-class Snapdragon 800 and 600 processors. The company’s competitors are not likely to curtail its ability to expand in the sector. Qualcomm’s increased sales revenue, additional innovation, and a restructuring of the company’s priorities should help it maintain its dominance.
Worldwide adoption of smartphones
The worldwide adoption of smartphones has enabled Qualcomm to deliver strong quarterly revenue results. Recently, the company announced revenue of $6.12 billion, up 24% year-over-year and 2% sequentially.
While the worldwide adoption of smartphones may increase sales in the short term, if the industry’s growth slows down, Qualcomm will have to either slow down its expansion or reduce dividends. This could provide a way for rivals to coax customers from the company, as they are looking for a sign of weakness. But since QUALCOMM, Inc. (NASDAQ:QCOM) has taken its time to diversify its operations, the company will maintain a balance between its smartphone and other businesses.
Chipset division growth
During its second quarter earnings report, Qualcomm reported a 17% growth year-over-year in chipset shipments. The company also reported a 29% growth year-over-year in device sales. Compared to peers Broadcom Corporation (NASDAQ:BRCM), which reported a product revenue of $1.9 billion and Texas Instruments Incorporated (NASDAQ:TXN), which reported an 8% revenue decrease in the first quarter, Qualcomm is right on par to remain competitive.
Along with introducing the Snapdragon processors, QUALCOMM, Inc. (NASDAQ:QCOM) has increased the pace of its licensing agreements and developed an extensive chipset roadmap. In comparison, Broadcom Corporation (NASDAQ:BRCM) has expanded its portfolio to state-of-the-art system-on-a-chip and embedded solutions. Qualcomm has also continued to invest heavily in research and development.
Investors should pay close attention to the communication equipment sector. QUALCOMM, Inc. (NASDAQ:QCOM), Broadcom Corporation (NASDAQ:BRCM), and Texas Instruments Incorporated (NASDAQ:TXN) develop processors and other business solutions, including data networking and storage.