Qualcomm Incorporated (NASDAQ:QCOM) is not a company many investors associate with cars. However, with the company charging headfirst into vehicle infotainment chips, could investors soon start thinking of QCOM stock as a play on the automotive industry?
U.S. car sales in 2015 hit a record, topping at the previous peak set 15 years ago, thanks to cheap gasoline, higher employment, and low interest rates. (Source: “U.S. Car Sales Set Record in 2015,” The Wall Street Journal, January 5, 2016). Qualcomm stock will benefit from the company’s expanded technology portfolio in the automotive sector to foster innovation in this area.
This Could Be Big for QCOM Stock
This will be possible thanks to integrated solutions in the field of telematics and connectivity, high-definition graphics, and multimedia for advanced infotainment systems, machine intelligence and sensor fusion for advanced driver assistance (ADAS), location technologies, GNSS, V2X communications (vehicle to vehicle/infrastructure/pedestrians) for added security and comfort for the driver, as well as wireless charging for electric vehicles. (Source: Ibid.)
During the recent Consumer Electronics Show (CES 2016) in Las Vegas, Qualcomm announced that Audi has chosen Qualcomm’s “Snapdragon 602A” processors for the automaker’s infotainment systems starting in 2017. (Source:” Qualcomm’s Automotive Chips Power Audi Infotainment,” Tom’s Guide, January 11, 2016.)
The reason this should translate to a QCOM stock gain is that the Snapdragon 602A is no ordinary processor chip. It the first specialized infotainment chip, designed specifically for the automotive market. It addresses the automotive industry’s standards, improving automotive quality where connectivity, infotainment, navigation, voice quality, and control functionality are all concerned.
Qualcomm has also unveiled its “Snapdragon 820A” chip for passenger cars with Internet connectivity ambitions—a fast-growing demand item—as well as the “Snapdragon Flight,” to be used in drones. (Source: “How Qualcomm’s Snapdragon 820 will improve next year’s gadgets,” Endgadget, November 10, 2015.) In the realm of the “Internet of Things” (IoT), Qualcomm’s innovations will be essential to facilitate the development of smart home systems. For this purpose, Qualcomm introduced the “212 Snapdragon” processor, which offers OEM processing capability, voice recognition, audio, and video.
Meanwhile, Qualcomm remains the world’s leading supplier of processors for the mobile device market, addressing tablets and smartphones alike. Its subsidiary Atheros is working on new Wi-Fi 802.11ad wireless technology, allowing for a data transfer rate of seven gigabits per second, compared to the 600-megabit-per-second 802.11n standard. This development will make multimedia and video streaming far more convenient and seamless. (Source: “Qualcomm at CES Brings Technologies to Power, Connect Devices,” eWeek, January 9, 2016.)
Qualcomm will also be working with Japan’s TDK to create a new radio frequency (RF) modules joint venture, dubbed RF360 Holdings, which will be based in Singapore. (Source: Qualcomm and TDK in $3bn wireless component venture, Financial Times, Jan.13, 2016.)
Qualcomm will own the majority (51%) share of RF360 Holdings, which intends to integrate the partners’ respective RF components in miniaturized modules for mobile. Crucially, where it comes to future revenue growth and QCOM stock, the new company is targeting the emerging IoT area, which will complement each company’s expanding applications in the automotive, drone, and robotics fields.
Qualcomm Targeting an $18.0-Billion Market
Qualcomm’s main contribution to the joint venture is its RF front-end component technology, such as antenna switches. TDK brings its micro acoustic filters, packaging technologies, and expertise in electronics integration. Some 4,200 people, contributing to generating revenue of $1.0 billion, will staff the joint venture.
The ambition is to combine the two companies’ solutions in more comprehensive, integrated modules that will then be embedded in even more compact objects in a market that should grow to $10.0 billion in 2015 and up to $18.0 billion by 2020. (Source: Ibid.)
In a second step, QCOM stock will benefit, as Qualcomm aims to buy back TDK’s 49% portion for an expected $3.0 billion. (Source: Ibid.)
Before this transaction is consummated, Qualcomm and TDK will have deepened each other’s technological cooperation in such crucial future growth areas as the generation 5G mobile, the Internet of Things, and mobile application technology. The partnership targets RF circuits, sensors, MEMS, batteries, and wireless charging devices.
Basically, this is a good move for Qualcomm and it could end in big rewards for holders of QCOM stock.