Qualcomm’s Ambitious Expansion Plans Take Center Stage
The chipmaker’s stock took a hit on Wednesday, plummeting as much as 6% following its investor day event, where it unveiled bold new financial targets for its non-smartphone business. Despite the initial reaction, Qualcomm’s vision for the future is one of diversification and growth.
A Shift in Focus
Qualcomm, long synonymous with handset chips, is aggressively expanding into other areas, including semiconductors for cars, personal computers, and other devices. The company expects these businesses to generate a combined $22 billion in sales by 2029, with $8 billion coming from its automotive segment and $14 billion from its Internet of Things (IoT) segment.
Autonomous Driving and Beyond
In the automotive space, Qualcomm has already forged partnerships with major players like BMW to enhance computing functionality in vehicles and drive towards more autonomous driving. Meanwhile, its IoT segment encompasses extended reality devices, industrial functions, and PCs, which are expected to account for $4 billion in sales.
PC Business: A High-Confidence Target
Qualcomm CEO Cristiano Amon expressed confidence in the company’s ability to reach its $4 billion target for the PC business, citing the success of its Snapdragon X Elite chips in Microsoft’s latest Surface laptops. However, some analysts have expressed skepticism, citing intense competition and Windows-on-ARM uncertainty.
Diversification Challenges
While Qualcomm’s diversification efforts are ambitious, they also come with challenges. The company must grab market share in emerging tech markets, which are still developing. Additionally, Apple’s plans to migrate away from Qualcomm modems pose a threat to the company’s smartphone business.
A Conservative Assumption
Amon projected mid-single-digit growth for the Android-based business, a conservative assumption that suggests the company expects to end the decade with revenue split evenly between handsets and autos/IoT combined.
The AI Factor
The adoption of AI capabilities in smartphones is expected to be an unpredictable process, but one that will ultimately benefit Qualcomm. Amon believes that within five years, AI smartphones will become the norm, driving an upgrade cycle that will greatly benefit the company.
A Solid Earnings Power
Despite the challenges ahead, Qualcomm’s narrative of solid earnings power remains intact. The company’s assumptions don’t appear to require huge stretches, and its diversification efforts are expected to pay off in the long run.
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