Qualcomm 2.0

on December 16, 2019

Few companies thrived as much during the wireless and mobile communications era than Qualcomm. As cell phones were going from clunky briefcase-sized devices to sleek-pocketable devices everyone owned, Qualcomm was at the center of it all. Their S-curve growth during the mobile communications era was much like Google’s during the Internet growth era. However, two decades later as smartphones sales are plateauing Qualcomm had to reinvent itself

I’ll be completely honest, and I had my concerns about Qualcomm a few years ago. I wrote about those concerns in detail as a guest post in Ben Thompson’s Stratechery Daily note. At the time, my analysis of Qualcomm was putting pieces together that outlined their struggles and how competitors were verticalizing and pushing Qualcomm into less profitable parts of the market. As a whole, my worry was Qualcomm’s silicon roadmap strategy risked them losing premium products and not having a portfolio that can serve as many markets as they need.

Luckily for Qualcomm, they made wise strategic decisions, partly helped by errors by competitors, but also by retrenching on investing in industry-leading innovation and developing a chipset architecture that is more flexible and modular than things they have done in the past.

I outlined in my subscriber note last week, as I analyzed the announcements made at Qualcomm’s Snapdragon Summit, how their new SoC, modem, and RF module solutions is a strategically smart move that enables them to attack more markets and serve more customers. But, ultimately, the main point that sets this Qualcomm up from years past is their ability to serve more customers by fully embracing both a modular and an integrated solutions approach simultaneously.

Integration is in Qualcomm’s DNA. Their integrated approach has tremendous value for a certain set of customers, but Qualcomm was not recognizing the trend of integration of their existing customers and partners and losing the ability to serve the wider market with modules. Interestingly, this is why the NXP acquisition was smart for Qualcomm, and it filled the gap that was created during their doubling down on integration strategy. NXP had many components that were companion parts to Qualcomm solutions and enabled them to serve more and new markets.

In some ways, I think their re-embracing of modular solutions is a result of the NXP deal not going through, and ultimately, this new strategy may work out even better than an NXP acquisition would have. Speculation on my part for sure, but what the acquisition falling through did was cause a shift in Qualcomm’s strategy that has quite a lot of upside, in my opinion.

Enabling Competition
After watching Qualcomm the past few years make needed adaptations to the changing market needs, is how important Qualcomm has become to enable market competition among both mature and emerging technology markets. For example, look at what is happening in VR/AR and even wearable computing and nearly every company competing in the space is choosing Qualcomm processors. Honestly, there aren’t many options. Intel is busy dealing with supply shortages and growing its data center business. Samsung doesn’t offer a full solution broadly to the market yet, if ever, and Mediatek is the closest vendor silicon competitor but does not yet have a robust solution for mid-high end VR and AR.

I made a point last week that I thought was pertinent broadly about Qualcomm’s work with their XR2 platform. If you are any company, who is hoping to compete with Apple, what chipset solution would you use? As of now, the answer comes from Qualcomm with its XR2 platform. While I maintain that Apple has a clear lead in silicon that is pushing the boundaries of what is possible in very small computers, like Apple Watch and AirPods, Qualcomm is working hard to keep innovating and helping customers compete with smaller, more powerful AR headsets.

While we are still years away from any kind of mass-market augmented reality glasses solution, the underlying work to develop the market and solve critical technical hurdles is going on now.

Interestingly, AR in the enterprise/commercial markets looks to be starting to ramp. New use cases, like wearing glasses to have multiple screens or apps you are working on, moved all over a spatial desktop. Glasses for telepresence, or examples like Spatial, are showcasing the emerging enterprise use cases for augmented reality.

You are going to see the commercial AR space begin to ramp in 2020, and I don’t see many of these running anything outside of Qualcomm for the time being. Which, even though most will be Qualcomm based, the meta point remains about how Qualcomm is enabling an ecosystem of competition among product companies.

A good example of this is the announcement on Niantic working with Qualcomm to build a pair of AR glasses that will compliment Pokemon Go, Harry Potter Wizards Unite, and any other new games. These solutions will be more focused on gaming and entertainment, but when I look at AR, and even VR, the lowest hanging fruit will be entertainment based use cases and productivity ones in commercial markets. AR/VR will continue to be built out in those segments before we can see progress around what I’d consider a general-purpose AR solution.

For the time being, I’m more optimistic about Qualcomm than I was a few years ago, thanks to a series of adjustments they made with their product and architecture approach. I wrote last year about the Semiconductor Golden Era, and the thrust of my point was because semiconductor companies were not just speeds and feeds focused but rather more focused on the total solution, including complimentary silicon that was optimized to work together as a complete whole.

The technical term is heterogeneous computing, and Nvidia CEO Jensen Huang articulated this future to me over a decade ago, and he turned out to be exactly right. Moving from homogeneous solutions (where everything core to a computer is on one chip) to heterogeneous ones where a series of chips, best designed for the job at hand, work together in a symphony is a much more efficient way to design and optimize computers. Every semiconductor company is embracing this now, and that is very good for the marketplace, competition, and innovation. Qualcomm’s embrace of both a homogeneous and a heterogeneous set of computing solutions has them well-positioned in the market.

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