Onion of the Day – Qualcomm (QCOM)
-Digitimes is reporting Apple is looking to build their own baseband chips for the iPhone and is hiring an R&D team for that purpose.
Apple reportedly plans to form a R&D team to develop baseband processors for use in iPhones to be released in 2015 and will place the baseband chip orders with Samsung Electronics and Globalfoundries, according to industry sources.
Apple currently purchases baseband chips from Qualcomm, which then produces the chips at Taiwan Semiconductor Manufacturing Company (TSMC), indicated the sources, adding that Qualcomm and TSMC will be affected if Apple decides to develop baseband chips in house.
Why is it bad news for Qualcomm?
-Qualcomm dominates the baseband chip business with over 50% market-share and has Apple as one of its biggest customers. If Apple brings this in-house, it would be severely detrimental to Qualcomm’s financial performance. Remember Apple has done this before with the P.A. Semi acquisition to make ARM CPUs in-house.
-Digitimes says Qualcomm has over 50% market-share of the $16-19 billion annual baseband chip business ($8.75B of annual Qualcomm sales at mid-point using the 50%). Strategy Analytics says Qualcomm has 66% market-share of the baseband business. The consensus street estimate for Qualcomm revenue in FY2014 is $26.8B.