A couple of days after NVIDIA Corporation (NASDAQ:NVDA) essentially declared an all-out war on the chip sector with its Tegra 4i chip, QUALCOMM, Inc. (NASDAQ:QCOM) answered. But the tech giant didn’t just care to retaliate. Qualcomm has plans to demolish its rivals. In the process it wants to fatten up the pockets of its investors, while also saving its OEM partners potentially billions in production costs. In return, Qualcomm should see its stock advance 25% from current levels — it’s just a matter of time.
When Qualcomm reported first-quarter earnings several weeks ago, it was reassuring that amid such “doom and gloom” from likes of Texas Instruments Incorporated (NASDAQ:TXN), Qualcomm guided above prior fiscal Q2 estimates for revenue and EPS. Now we know why. Chances are, guidance will now prove too conservative. On Thursday, the chip giant shook an already shaken sector by announcing a revolutionary chip, the RF360 Front End Solution, which eliminates radio frequency band fragmentation — the biggest headache for device manufactures.
Essentially, Qualcomm has combined all of the LTE platforms into one chip family. And by improving the RF performance, which now supports all seven cellular modes, this means that one platform can now function on every network. Now, OEMs such as Apple Inc. (NASDAQ:AAPL) do not have to manufacture three versions of its iPhone 5 just to support multiple carrier frequencies. This is great news for Apple Inc. (NASDAQ:AAPL) and Samsung, but bad news for chip competitors. Shortly after Qualcomm’s announcement, shares of rivals RF Micro Devices, Inc. (NASDAQ:RFMD) and Skyworks Solutions Inc (NASDAQ:SWKS) plummeted 14% and 13%, respectively.
Qualcomm said the new chip should be available by the second half of this year. I would be surprised if it’s not in the new iPhone. The question, though, is why would any device manufacture consider an alternative? The potential cost savings and logistics should spur margins higher. What’s more, that the chip will have a smarter tuner, improved power consumption and better heat reduction, it should also save device manufacturers on after-purchase support and warranties.
For Qualcomm, this is truly a game-changing and competition-killing product. But what does it mean for the company in the near term? Given the Street’s propensity to scream “cannibalization” each time Apple Inc. (NASDAQ:AAPL) announces a new product, it seems logical to expect a similar effect on Qualcomm. Why would device manufacturers not consider postponing orders until the second half the year once the RF360 hits the market? This means the next couple of quarters from Qualcomm might be softer than usual.
We do know for certain that the new chip won’t be available in Samsung’s new phone, the Galaxy S IV, which is slated to hit the market next month. This presents an advantage to Apple Inc. (NASDAQ:AAPL), whose product cycle aligns perfectly with Qualcomm’s release. And if you consider that Apple might also release a cheaper iPhone, Apple should certainly gain market share from Samsung in the next two quarters. So I would be buying shares of Apple here as well, since there’s now a good chance that its unit growth should outperform.