Qualcomm's crisis and redemption: The era of mobile phone chip dominance will end

Source: Tencent Technology Decoding Issue 1004 Original title: Qualcomm's Crisis and Redemption: The Era of Mobile Chip Domination Will End Written by: Guo Xiaofeng

As the year draws to a close, Qualcomm, the world's leading mobile chip company, is having a hard time. Affected by the fourth quarter, Qualcomm's stock price plummeted 14%, hitting a 52-week low. As the smartphone market becomes saturated and competitors, especially terminal manufacturers, continue to work hard on self-developed chips, Qualcomm's dominant position is being challenged, which also means that the industry oligopoly may end.

On November 4, Qualcomm released its latest quarterly financial report. Chip sales rebounded slightly, but it could not hide the huge hidden dangers the company faces in patent licensing fees, especially Chinese mobile phone companies have begun to "delay" the signing of patent licenses since the Chinese antitrust case at the beginning of the year.

The financial report has caused the industry to worry about Qualcomm's prospects. Its stock price plummeted 15% in one day on November 5, from $60.26 to $51.07, and the company's market value evaporated by about $19 billion in one day. Analysts believe that if Qualcomm cannot quickly recover patent fees from Chinese companies that have not signed patent licenses, its prospects will be very uncertain.

As we all know, Qualcomm's revenue mainly comes from mobile phone chips and patent royalties for numerous wireless communication patents. In recent years, Qualcomm has lost orders from its two largest buyers, Apple and Samsung, which has been a serious blow to its vitality. However, patent fees still support half of Qualcomm's profits for a long time, because almost all smartphones now still use the wireless communication patent technology developed by Qualcomm.

In particular, revenue from the Chinese market has accounted for more than 50% of Qualcomm's total revenue. At the beginning of the year, after settling an antitrust investigation with the Chinese government, Qualcomm encountered "difficulties" in terms of revenue from patent licensing fees. According to an article in the Wall Street Journal, Qualcomm's profits in the latest fiscal quarter fell sharply due to the failure to reach a new patent licensing agreement with major Chinese mobile phone manufacturers such as Xiaomi and Lenovo, and some manufacturers defaulting on patent fees.

In response, Qualcomm said in a conference call with analysts that the company has signed chip technology licensing agreements with more than 60 Chinese companies, including Huawei, TCL Communications, and ZTE. A Qualcomm China official also told Tencent Technology: "We are communicating with manufacturers that have not signed chip licenses, but this has not affected the company's overall development." Regarding the global layoff plan currently being implemented, the official also said that the Chinese region is not currently affected.

Market space shrinks dramatically

Two years ago, Qualcomm's market share in the mobile chip market was as high as 95%, making it the veritable "Intel" in the mobile phone industry. Since last year, Qualcomm's share has fallen to 66%, and its prospects this year are not optimistic. In addition to the impact of antitrust, this is also related to the fact that its competitor MediaTek in Taiwan is catching up.

In the field of mobile phone chips, MediaTek is second only to Qualcomm. Although it has not been able to get rid of the label of "King of Copycats", it is undeniable that its share in the mid- and low-end market has been gradually increasing in the past few years, and its tentacles have even extended to the mid- and high-end market dominated by Qualcomm.

However, MediaTek, obsessed with the "stacking core" strategy, has not been successful in the mid-to-high-end market, and many of its chip products have been used by mobile phone manufacturers to compete in the mid-to-low-end market. For example, MediaTek's Helio X10, which had high hopes for the high-end market, was completely disrupted by Xiaomi's previously launched Redmi Note 2, which was priced at 1,299 yuan. On the contrary, taking Qualcomm's flagship chip "Snapdragon 810" as an example, although there are occasional overheating news circulating in the market, Qualcomm's 64-bit octa-core processor has become the only chip choice for the latest flagship products of mobile phone manufacturers such as Huawei, Xiaomi, ZTE, LG, HTC, vivo, and Nubia.

Obviously, MediaTek has not really affected Qualcomm's performance. The real reason is the saturated smartphone market and the continued pursuit of self-developed chip terminal manufacturers such as Samsung and Huawei.

Data from multiple agencies show that in 2014, the cumulative shipments of China's mobile phone market were 452 million units, a decrease of 21.9% from 2013. In the first quarter of 2015, China's smartphone sales reached 99 million units, a decrease of 5.6% from the previous quarter. In the third quarter just passed, the global shipments of smartphones were slightly lower than the 363.8 million units previously predicted by IDC.

Even worse than the external environment is the awakening of mobile phone manufacturers. As the competition in the smartphone industry intensifies, mastering the core technology of chips has become the key to future competition. On the one hand, mobile phone manufacturers do not want to rely too much on Qualcomm, and on the other hand, they also want to build ecological capabilities to cope with future differentiated competition. At present, Samsung and Huawei's efforts in chips pose the greatest threat to Qualcomm.

Recently, Huawei HiSilicon released the latest Kirin 950 chip, which is said to be 40% faster and 60% more power-efficient. In terms of running score data, the Kirin 950 processor (82220) not only beats Apple processors and Qualcomm Snapdragon 810 (55,000), but also beats the latest Snapdragon 820 and Samsung Exynos 7420 (around 60,000).

As we all know, the business models of computer processors and mobile phone processors are completely different. ARM Holdings, a British company, develops various processor designs. The company does not manufacture chips, but licenses the designs to chip manufacturers around the world. ARM licenses Huawei to work from the same chip architecture and authorizes modification of chip designs, which is not good news for Qualcomm, especially since Huawei has such a high market share in China.

An industry insider who declined to be named told Tencent Technology: "With Huawei's technology and strength, chip technology is becoming more and more perfect. Although it is currently only used in some of Huawei's own products, once the ability to supply on a large scale is met, Huawei will no longer be a Qualcomm customer." It is reported that Huawei's latest flagship model Mate 8, which will be released on the 26th of this month, will be equipped with this processor.

In addition to the already unveiled Kirin 950 and the soon-to-be-released Snapdragon 820, the Exynos 8890 processor developed independently by Samsung, Qualcomm's largest customer, has also attracted much attention. According to previous news, this processor will use Samsung's own architecture Mongoose (M1), and the first model will be the Samsung Galaxy S7. It can be said that the use of Exynos chips in the previous generation S6 marked the beginning of Samsung's independence from Qualcomm.

Samsung and Huawei, the top three brands in terms of global shipments, have gradually abandoned Qualcomm's chips. This "blow" is fatal to Qualcomm. Xiaomi, another smartphone brand with a large shipment volume, is also working with another domestic chip manufacturer to explore the path of self-development. All of these will have a significant impact on Qualcomm's future development.

Betting on the Internet of Things to Redeem Itself

Perhaps aware of the potential crisis, Qualcomm is studying how to develop businesses other than mobile phone chips.

Qualcomm is trying to launch processors for large data centers and sell them to customers such as Google, Amazon and Facebook. These companies develop their own servers and run their own software. Therefore, these companies hope that other chip manufacturers besides Intel will emerge. In the server chip market, the proportion of orders from these companies is increasing.

So last month, Qualcomm demonstrated its first chip for servers, thus entering the server processor market currently dominated by Intel. Qualcomm's chip contains 24 processor cores, and its application scenarios include enterprise networks and Internet backbone computers. At the same time, there is also the Internet of Things market that can reflect Qualcomm's connectivity advantages. Some people regard the Internet of Things market as the next fast-growing area after smartphones. Institutions predict that by 2020, 50 billion devices will be able to connect to the Internet, and the global Internet of Things market will reach 3 trillion US dollars.

At the IoE Day (Internet of Everything) conference that just ended last month, Qualcomm once again released two new IoT solutions: the Snapdragon 618 Internet-connected camera reference design and development platform and the LTE modems MDM9207-1 and MDM9206, the latter of which can provide optimized cellular connections for the increasing number of terminals and systems in the Internet of Things and will be used in smart meters, security and other fields.

This is not the first time that Qualcomm has released IoT products in the field of IoT. Earlier, Qualcomm launched the "Snapdragon Flight Platform" for drones, which is a chip solution that can significantly reduce the production and design threshold of drones. It is understood that Qualcomm has launched a number of IoT devices in more than 30 countries around the world.

Specifically in the sub-sectors, Qualcomm has also launched different layouts in medical care, wireless charging, robots, and driverless cars. Morenkov, who took over as Qualcomm CEO last year, believes that one of the biggest beneficiaries of the IoT trend is healthcare. For example, a wearable device can detect signs that the user should see a doctor immediately. Qualcomm calls this ability the "digital sixth sense." Morenkov said that devices will become smarter in a non-traditional way. Qualcomm hopes to provide wireless chips for emerging IoT applications.

By continuously expanding into new technology markets, Qualcomm is trying to balance the decline in the smartphone sector. From an industry perspective, the rapid growth of mobile phone manufacturers' self-developed chips will end the era of Qualcomm's dominance in the chip market, and the future will be a landscape of competition among many players.

Generally speaking, China's annual imports of integrated circuits exceed those of oil, making it a major import item that cannot be ignored. Chinese companies are also constantly developing their business in this field, but there are still only a handful of companies that are able to compete. Domestic chips still need to accelerate research and development and innovation.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.