Qualcomm Stock Could Benefit from This (but It Won't Save the Chipmaker)

By Markets Fool.com


Image source: Qualcomm.

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Last year was rough for Qualcomm . The company's stock fell more than 30%, partly because of its poorly performing Snapdragon 810 processor. Investors found out that Qualcomm was vulnerable after years of dominating the mobile processor space.

But the chipmaker is starting 2016 off on the right foot. At the Mobile World Congress conference this month, a deluge of phone makers revealed their flagship devices -- and nearly all sported the new Snapdragon 820 processor.

The big reveals came after Qualcomm's 810 processor was plagued with overheating issues that left one of company's largest customers, Samsung , to ditch the processor in favor of its own. But the South Korean-based conglomeate returned to Qualcomm's chips for its new flagship Galaxy S7 and S7 Edge. Samsung will use the new chip in the devices sold in the U.S., China, and Japanese markets.

And it's not just Samsung that's found renewed faith in Qualcomm. Sony, HTC, LG, and Xiaomi are all using the Snapdragon 820 as well. In fact, Qualcomm's new processor has scored 100 design wins so far.

While this is all big news for Qualcomm, and should give investors some new confidence in the stock, this doesn't mean the end for Qualcomm's rough road.

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Not quite the days of old
Qualcomm is fighting its way back to the mobile dominance it once enjoyed, but it won't be easy.

MediaTek has become an increasing pain in Qualcomm's side, now takes about 40% of the LTE chip market by sales volume. MediaTek's smartphone chip revenue is just $4 billion, compared to Qualcomm's $17 billion, but it hurts Qualcomm nonetheless.

MediaTek has ridden the wave of China-based device makers, which now account for nine out of 12 of the top device makers, by sales. And MediaTek said at the end of last year that it aims to steal more market share away from Qualcomm in the future.

If that weren't enough, Chinese smartphone makers Xiaomi (which just added the Snapdragon 820 into its Mi5 phone) and Huawei are looking into ways to make their own mobile chips.

Standing firm on shifting ground
While Qualcomm isn't out of the woods yet, the design wins the company has with its 820 processor should allow the company to bring in additional revenue while it looks ahead to new opportunities.

The company learned an important lesson about fleeting market share last year, and hopefully it can grow from that. Qualcomm can no longer lean on the mobile processor segment and needs to instead focus its attention on wearables and the broader Internet of Things segment. The company has already moved into these areas already, but it needs more.

The early Snapdragon 820 successes are great and should allow the company to re-establish some of its mobile processor position. But if Qualcomm starts leaning too heavily on the smartphone segment again it could end up disappointing investors. Instead, Qualcomm should use the latest good news to regroup, and focus its attention on future growth. Smartphones aren't going anywhere, but with competition in the space heating up, it's time for Qualcomm to look elsewhere.

The article Qualcomm Stock Could Benefit from This (but It Won't Save the Chipmaker) originally appeared on Fool.com.

Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.