How 4G Gobi Chips Will Help Qualcomm

Qualcomm's 4G-enabled Gobi chip sets could lead to an improvement in the company's chip set market share.
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Qualcomm's (QCOM) - Get Report stock depends on sales of chip sets used in mobile phones and notebooks. We estimate that about 43% of Qualcomm's stock is attributable to the company's chip set business.

In comparison, about 30% of Qualcomm's stock value comes from mobile phone royalties, and the company's large cash balance constitutes slightly over 25% of the stock.

Qualcomm recently announced a new product road map that includes adding 4G technology to its Gobi chip sets.

By incorporating 4G technology in Gobi, Qualcomm's chip sets will appeal to a wider range of device makers, which could lead to an upside of 1% to the $42 Trefis price estimate for Qualcomm's stock if the company's chip set market share were to increase more than we forecast.

Gobi is for Notebooks, Netbooks and Tablet PCs

Gobi chip sets are the embedded wireless modems used in many notebooks, netbooks and tablet PCs. The chip sets provide Internet access without the need for a Wi-Fi connection and make it easier for device users to access mobile Internet.

Gobi Still Small Part of Qualcomm's Chip Set Revenue

We expect Qualcomm's notebook chip set revenue to remain a small component of overall chip set revenue for Qualcomm. We currently forecast Qualcomm's notebook chip set business will earn about $800 million revenue by the end of our forecast period compared with $12 billion of revenue earned by Qualcomm's mobile phone chip sets business.

The difference is due to the large addressable market of mobile phones compared with notebooks, and the large market share of Qualcomm in mobile chip sets compared with notebook chip sets.

Opportunity to Increase Notebook Chip Set Share

We believe that new 4G-enabled Gobi chip sets will appeal to a wider range of notebook, netbook and tablet PC makers, and that could lead to an improvement in Qualcomm's chip set market share.

Qualcomm had less than 3% market share

in the notebook chip sets market in 2009, and we expect it to increase to around 10% by the end of Trefis forecast period.

Two reasons why Gobi chip sets will help Qualcomm continue to gain share in notebook chip set market:

1. Qualcomm's increasing partnership with PC vendors

Qualcomm already partners with

Sony

(SNE) - Get Report

,

Acer

,

Panasonic

(PC)

,

Hewlett-Packard

(HPQ) - Get Report

and

Dell

(DELL) - Get Report

in the PC space to provide Gobi chip sets. This list, however, is growing, with

Lenovo

recently becoming a Qualcomm partner. Some of Lenovo's Thinkpad laptops now include Gobi chip sets.

2. Wi-Fi independence addresses the user's need for greater mobility

The Gobi chip set helps to satisfy end-user needs for greater Internet mobility by providing users with high-speed wireless data capabilities for laptops over both GSM and CDMA networks. This reduces the need for access to Wi-Fi for mobile Internet connectivity.

1% Upside to Qualcomm's Stock if Notebook Chip Set Market Share Increases at a Faster Rate

Although we forecast that Qualcomm's share in the notebook chip set market will increase to around 10%, there could be an upside of about 40 cents (1%) to the

$42 Trefis price estimate

for Qualcomm's stock if the company's market share increases at a faster rate to reach 13% by the end of Trefis forecast period.

You can

modify

our forecast for Qualcomm notebook chip set market share above to see how Qualcomm's stock could be affected in different scenarios.

For additional analysis and forecasts, here is our

complete model

for Qualcomm's stock.

Trefis

is a financial community structured around trends, forecasts and insights related to some of the most popular stocks in the U.S.