Although bookings and billings have been decreasing over the past half year, January and February levels have stabilized further substantiating a semiconductor bottom and an opportunity to invest before the rebound.
3G Growth
Wireless companies Vodafone (VOD), Verizon (VZ) and AT&T (T) have reported data revenue growth of 46%, 41% and 51% respectively from 4Q 2007 to 4Q 2008. With data traffic exploding, wireless networks need to be upgraded to third generation (3G) to sustain the increase in bandwidth usage. Today, only 720 million people are 3G subscribers, but by 2013, that number is expected to grow at a 29% CAGR to 2.5 billion 3G subscribers, 1 billion of which in Asia. 3G phones are predicted to increase from 40% of the world cell phone mix to 70-80% by 2012. Asian countries such as China and India have huge wireless growth potential due to their exponential population boom and under-served rural markets. China is expected to spend over $60 billion over the next three years with help of its stimulus plan to build out its 3G network in both metropolitan and rural areas. India has just began rolling out its 3G network and Indian CDMA net adds more than doubled from the December quarter. Even Korea and Japan have seen increases in CDMA/WCDMA subscribers. In the long run, even 3G will be obsolete, but QCOM is preparing for this; the 4G technology called Long-Term Evolution (LTE) is QCOM’s single largest R&D project. All this boils down to one key point: QUALCOMM will capitalize on this significant trend in telecom because they are the major supplier of 3G wireless integrated circuits for both infrastructure and handsets.
Smartphone Growth
A smartphone is a loose term, but I will define it as a mobile phone with advanced capabilities beyond that of standard texting and voice calling, including features such as email, web browsing, Microsoft Office documents, MP3 playback, and much more. Smartphones have continued to grow even amidst our recession; Gartner research predicts smartphone sales to increase 29% in 2009. Last quarter, QCOM shipped 69 million chips, ahead of estimates and the company’s high end of guidance of 60-65 million. The company has predicted a 40% CAGR through 2013 and that 31% of all handset shipments will be smartphones in that year. Wireless providers have been aggressively promoting these phones due to their high margins that drive average revenue per user (ARPU) upward. For instance, Verizon has a “buy one get one free” Blackberry promotion and AT&T subsidizes the iPhone $200.
QCOM is also well-positioned to ride the next wave in consumer electronics with its Snapdragon and Gobi chips for higher-end smartphones, mobile internet devices, netbooks and laptops.
