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Qualcomm Gets to the Core of the Mature Smartphone Market

NEW YORK ( TheStreet) -- It's not easy being a Qualcomm (QCOM - Get Report) investor.

Right now, after a strong fiscal year 2013, the bulls are living with the knowledge the smartphone market has "matured" -- sales are down in some regions, particularly the U.S.

But if you look down the road, Qualcomm's growth fundamentals look strong for 2014, and there are reasons to be bullish about this stock:

  1. New market segments in the application processor market like 64-bit architecture and octa-core.
  2. Strong growth potential from China and other emerging countries will help the company offset negative impact from the maturing smartphone market in developed countries.
  3. China's transition to LTE will boost the royalty and licensing revenue of the company.

Welcome to the Octa-Core Era

In the recently held Mobile World Congress, Qualcomm stirred the processor market battle with the launch of its new 64-bit octa-core Snapdragon 615 processor, its advanced computing architecture with 64-bit support and high processing capability. MediaTek initiated the war of cores after launching the world's first octa-core chip, MT6592, in November last year.

Since then MediaTek has been building a strong product line in octa-core processing with announcement of MT6595 and MT6752 in February. MT6595 is a 4G LTE integrated octa-core SoC that uses four cores of the new ARM Cortex-A17 and four cores of the ARM Cortex A7 design, while MT6752 is a 64-bit octa-core LTE SoC.

Although octa-core processing is at a nascent stage, the availability of these features in the low to mid-tier smartphone market has benefited MediaTek in winning designs in China, one of the reasons why Qualcomm is losing the core war to MediaTek.

So Qualcomm's Snapdragon 615 processor launch will help the company protect its market share in the application processor market. In addition, availability of 64-bit computing, along with the latest Adreno 405 GPU and integrated multi-mode LTE support, solidifies Qualcomm's position against MediaTek's octa-core processors.

Qualcomm had 54% revenue share in the smartphone application processor market in 2013, and its strategy of targeting new market technologies like 64 bit and octa-core will help safeguard its market share in a growing competitive scenario.

The company now has three product designs in 64-bit architecture support, targeting different market segments. The first 64-bit processor, Snapdragon 410, targets affordable smartphones in the sub-$150 price point, while Snapdragon 615 and Snapdragon 610 (quad-core 64 bit offering) are for mid to high end mobile devices.

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