A Primer on QUALCOMM

Our Primers gets you up to speed

This Primer enables investors to familiarize themselves with the basic moving parts and mechanics of the company. See also our Quick Take, which assesses QUALCOMM as an investment, trying to deal with issues like:

• Why are QUALCOMM shares so cheap?

• Can the company make a successful transformation to an edge-AI provider?

• What are the risks with Apple, China, tariffs, and the like.

Introduction

• QUALCOMM is a global technology leader, its fiscal year ends in September. The company's corporate structure involves a parent company, QUALCOMM Incorporated, and multiple direct and indirect subsidiaries.

• QUALCOMM Incorporated owns the vast majority of the patent portfolio and operates the QTL licensing business.

• Qualcomm Technologies, Inc. (QTI), a subsidiary, operates substantially all product and services businesses, including QCT, and engineering and research and development functions. Snapdragon and Qualcomm-branded products are products of QTI and/or its subsidiaries. QTI and its subsidiaries do not have the authority to grant licenses under patents owned by QUALCOMM Incorporated.

• The company has approximately 49K full-time, part-time, and temporary workers globally (per September 2024), representing over 100 nationalities in over 150 locations in 37 countries.

Core Business

• QUALCOMM has nearly 40 years of leadership in setting industry standards and creating technology breakthroughs, playing a leading role in developing system-level inventions for advanced wireless technologies.

• Foundational technologies include 3G, 4G, and 5G wireless connectivity, high-performance and low-power computing, and on-device artificial intelligence (AI), powering growth in smartphones and other connected devices.

• The company is scaling innovations across industries beyond mobile handsets, driving digital transformation in areas like automotive and the internet of things (IoT).

• Revenues are principally derived from sales of integrated circuit products (like the Snapdragon family) and licensing of intellectual property (patents and other rights).

• Foundational technologies are shared broadly through licensing programs and the sale of integrated circuit platforms and other products.

Key Technologies

Wireless Connectivity

• Inventions have helped power growth in various industries and applications, including CDMA (Code Division Multiple Access) and OFDMA (Orthogonal Frequency Division Multiple Access) families of technologies. OFDMA encompasses LTE (Long-Term Evolution) and 5G NR (New Radio), which are the primary digital technologies for voice/data transmission over cellular networks today.

• 5G is designed to support multi-gigabit data rates, low latency, and greater capacity for enhanced mobile broadband experiences, including ultra-high definition video, near-instantaneous cloud access, immersive cloud gaming, and XR (augmented, virtual, and mixed reality).

• 5G Advanced builds on initial 5G standards, enhancing capabilities, expanding use cases, and integrating features like wireless AI.

• Other technologies include Wi-Fi, Bluetooth, position location (A-GPS, A-GNSS, WLAN positioning), UWB (ultra-wideband), RF (radio frequency), and RFFE (radio frequency front-end) and antenna designs.

Computing

• Processors are purpose-built for mobile, automotive, and IoT using System-on-Chip (SoC) architecture with heterogeneous computing, utilizing CPU, GPU, and NPU for high-performance, low-power computing, including Qualcomm Oryon and Qualcomm Kryo CPU processors.

• Qualcomm Adreno GPUs are designed for high-quality graphics.

• Qualcomm AI Engine includes dedicated hardware for complex on-device AI, enhancing privacy, security, performance, and low power consumption.

• The Qualcomm Hexagon NPU is a key processor in the AI Engine for sustained, high-performance AI inference.

• The Qualcomm AI Stack is a unified software portfolio to help developers optimize and deploy AI models on Snapdragon platforms.

• The Qualcomm AI Hub is an online resource for developers to access models and resources for deployment on Snapdragon platforms.

Other Significant Technologies:

• Multimedia technologies (video, audio, speech compression, imaging, audio, vision intelligence).

• Operating system and user interface features.

• XR platform features (6DoF head tracking, controller capabilities, video pass-through, embedded cellular connectivity, hybrid computing).

• Automotive platform features (digital cockpit, ADAS/AD).

• Security and content protection systems.

• Memory and related controllers (LPDDR4, 5, eMMC).

• Fast charging features.

• Qualcomm Smart Transmit technology (modem-to-antenna optimization).

• Power management systems.

Operating Segments

QUALCOMM has three reportable segments.

QCT (Qualcomm CDMA Technologies)

• A leading developer and supplier of integrated circuit products and system software with advanced connectivity and high-performance, low-power computing technologies.

• Serves mobile devices, automotive systems (connectivity, digital cockpit, ADAS/AD), and IoT (consumer, industrial, edge networking).

• Products are sold and system software licensed to manufacturers ranging from low-tier to premium devices.

• The Snapdragon family includes mobile, compute, sound, and automotive platforms. These platforms consist of application processors, wireless connectivity (cellular modem, Wi-Fi, Bluetooth), and global positioning functions. Application processor functions include AI, security, graphics, display, audio, video, camera, and other compute processing.

• Also designs and supplies supporting components like RF transceivers, power management, audio, codecs, speaker amps, and additional wireless connectivity ICs, which can also be sold individually.

• Offers Qualcomm RFFE components designed for 5G and 4G LTE devices, including modules, power tracking, tuning systems, power amplification, low noise amplifiers, and mmWave antenna solutions.

• Wireless connectivity products include integrated circuits and system software for Wi-Fi, Bluetooth, FM, and location technologies, used across mobile, tablets, PCs, XR, voice/music, wearables, automotive, utility meters, logistic trackers, and industrial sensors. Also offers standalone Wi-Fi, Bluetooth, application processor, and Ethernet products. Networking products include Wi-Fi, Ethernet, PON chips, network processors, wireless access points, routers, broadband gateway equipment, and software.

• Mainly uses a fabless production model for integrated circuits, relying on third parties for manufacturing, assembly, and most testing based on proprietary designs. Primary foundry suppliers include TSMC, Global Foundries, Samsung Electronics, and SMIC. Primary assembly and test suppliers are Advanced Semiconductor Engineering, Amkor Technology, Siliconware Precision Industries, and STATSChipPAC. Most suppliers are in the Asia-Pacific region.

• Uses internal fabrication facilities for certain RFFE modules and RF filter products, located in Germany, Singapore (front-end), and China, Singapore (back-end).

• QCT's marketing promotes Qualcomm as enabling intelligent computing everywhere and Snapdragon as the platform brand for premium experiences across handsets, automotive, and IoT.

• QCT operates in intensely competitive industries, competing globally with numerous semiconductor designers and manufacturers. Principal competitive factors include performance, integration level, quality, standards compliance, price, time-to-market, system cost, design capabilities, innovation, distribution, multi-supplier use, and customer support. Additional factors for automotive and IoT include long design-in times, product life cycles, regulatory/safety requirements, stringent qualification, low defect rates, and high reliability.

• Current competitors include Broadcom, HiSilicon, MediaTek, Mobileye, Nvidia, NXP Semiconductors, Qorvo, Samsung, Skyworks, Texas Instruments, and UNISOC. Competition also comes from products developed internally by customers like Apple and Samsung.

QTL (Qualcomm Technology Licensing)

• Grants licenses or provides rights to use portions of QUALCOMM's intellectual property portfolio.

• This includes patent rights essential to and/or useful in the manufacture and sale of certain wireless products, including those implementing WCDMA, LTE, and/or OFDMA-based 5G standards.

• Licenses are granted for cellular standard-essential patents (3G, 4G, 5G) for single-mode and multimode devices globally. Licenses may also include other Qualcomm patents useful to such products.

• A significant portion of licensing revenues comes from licensees manufacturing products like mobile devices (handsets, tablets, PCs), data modems, embedded modules, connected vehicle units, wireless access points, and small cells.

• QUALCOMM has a leading intellectual property portfolio related to foundational, system-level technologies for the wireless industry, with extensive patents worldwide, particularly strong in CDMA and OFDMA-based technologies (CDMA2000, WCDMA, UMTS, LTE, 5G NR).

• The patent portfolio is widely licensed, with over 200 5G license agreements to date. The industry generally recognizes that a license or rights to QUALCOMM's patents are required for manufacturing/selling certain wireless products using 3G, 4G, and/or 5G technologies.

• Also has a substantial patent portfolio for other key technologies like video/audio codecs, Wi-Fi, memory/wireline interfaces, wireless power, position location, broadcast/streaming protocols, and short-range communication (Bluetooth).

• Licenses cover a wide range of technologies across connectivity, computing, and AI applications in diverse markets, not just those in chipsets.

• The strategy of making patented technologies broadly available has been a catalyst for industry growth, enabling a wide range of products and features while potentially driving down device prices.

• Licenses generally cover multimode CDMA/OFDMA (3G/4G/5G) devices, with licensees largely paying per-unit royalties.

• The vast majority of QTL revenues are from licensees' sales of OFDMA-based products (including 3G/4G and 3G/4G/5G multimode devices) like smartphones.

• Some license agreements may grant QUALCOMM rights to use licensees' technology for certain components, devices, and/or infrastructure equipment.

QSI (Qualcomm Strategic Initiatives)

• Makes strategic investments, primarily through Qualcomm Ventures, focusing on expanding or opening new opportunities for technologies, supporting new product/service introduction, enhancing existing ones, obtaining expertise, growing the patent portfolio, or pursuing new businesses.

• Investments are often in early-stage companies across industries like 5G, AI, automotive, consumer, enterprise, cloud, IoT, and XR.

Other Businesses

• Nonreportable segments include QGOV (Qualcomm Government Technologies), which provides development/other services and sells products to U.S. government agencies, and a cloud computing processing initiative.

Industry Trends

• Mobile is the largest technology platform, transforming connection, computing, and communication.

• Advanced connectivity and high-performance, low-power computing from mobile devices are impacting many industries beyond wireless.

Artificial Intelligence

• Advancements in processor technologies enable the distribution of complex workloads across cloud and edge devices.

• Edge device computing allows more context-aware processing, reducing response time, improving privacy/security, and enabling personalization.

• Mobile handsets and PCs are becoming pervasive AI platforms, running complex large generative AI algorithms on-device with lower energy than cloud applications.

• Generative AI is expected to become ubiquitous, expanding into IoT, XR, and automotive.

• Significant investment continues in developing complex large language models (LLMs), small language models (SLMs), large vision models (LVMs), large multimodal models (LMMs), and other generative AI models. These models are changing user experience and disrupting traditional methods like search and content creation.

• While primarily developed for the cloud, the variety of innovative enterprise and consumer use cases require running on-device to maximize utility and provide benefits like immediacy, privacy, security, and personalization.

• Continued advancement in generative AI capabilities of edge devices and increased adoption in handsets and other edge devices are expected. Analysts estimate 46% of smartphones sold in 2027 will be generative AI capable, up from 19% in 2024. Analysts expect at least 50% of PCs sold in 2027 will be AI capable, compared to 22% in 2024.

Advancing Connectivity

• The industry is transitioning to 5G as network deployments and device launches continue.

• 5G Advanced introduces key improvements for continued 5G commercialization, supports services beyond mobile broadband, and lays groundwork for 6G.

Consumer Demand for Smartphones

• Estimated low-to-mid-single digit percentage increase in consumer demand for 3G, 4G, and 5G handset volumes in calendar year 2024 vs. 2023.

• This includes expected high single-digit to low double-digit percentage growth in 5G handsets.

• Consumer demand for new experiences, combined with needs of operators/manufacturers, drives innovation in the smartphone across connectivity, processing, AI, multimedia, imaging, audio, etc..

• The combination of 5G and AI is expected to make smartphone experiences more immersive, intuitive, and interactive.

Automotive

• Digitalization of the automotive cockpit, including wireless connectivity, is transforming the in-vehicle experience.

• Snapdragon Digital Chassis platforms (connectivity, digital cockpit, ADAS/AD) connect the car to its environment and cloud, create in-cabin experiences, and enable assisted/automated driving.

• Car-to-cloud platforms help automakers improve cost efficiency, create new service opportunities (OTA updates), and gather analytics, driving the software-defined vehicle architecture.

• Analysts project 67% of new vehicles produced in 2030 will have embedded cellular connectivity, with 48% featuring 5G connectivity (up from 11% in 2024).

• High-performance, low-power computing with security/safety requirements are improving vehicles with ADAS/AD features, expected to scale across vehicle tiers.

• Analysts estimate 39% of new light duty vehicles sold globally in 2027 will have Level 2 or higher autonomy, compared to an estimated 20% in 2024.

Key Components

• Snapdragon Cockpit Platform: Powers digital instrument clusters, infotainment systems, and provides immersive in-cabin digital experiences.

• Snapdragon Ride Platform: Delivers advanced driver-assistance systems (ADAS) and autonomous driving capabilities, processing data from cameras, radar, lidar, and other sensors.

• Auto Connectivity: Ensures fast, reliable vehicle connectivity through technologies like 5G, supporting features such as over-the-air (OTA) updates and cloud services.

• Car-to-Cloud Services: Enables continuous updates, diagnostics, and new features throughout the vehicle’s lifecycle via cloud integration.

• Digital Twin: Manages the vehicle over its lifecycle, supporting remote diagnostics and updates.

• Software-Defined Vehicle (SDV) Architecture: Allows for flexible, upgradable software and microservices-based applications, decoupled from specific hardware.

IoT

• Demand for IoT devices is expected to remain strong across consumer, edge networking, and industrial applications.

• This is partly due to expanded use cases enabled by 5G and AI technologies, including generative AI.

• Consumer IoT (PCs, tablets, voice/music, XR) adopt latest mobile connectivity, processing, and intelligence technologies, including on-device AI.

• Edge Networking (mobile broadband, wireless access points) demand is driven by advances in wireless technology. 5G supports mobile and fixed wireless with high-speed, low-latency connections. Advancements in Wi-Fi (Wi-Fi 6, 6E, 7) drive demand for access points leveraging increased speed, capacity, and efficiency.

• Industrial IoT (retail, tracking/logistics, energy) combines devices with connectivity, computing, on-device AI, precise location tracking, and the cloud to provide near real-time data and insights for business transformation and optimization.

Revenue Concentrations

• In fiscal 2024, revenues from Apple, Samsung, and Xiaomi each comprised 10% or more of consolidated revenues.

XR

• Qualcomm has purposely built SoCs for XR devices, where power efficiency is critical. They operate within a milliwatt envelope for AR, which is a significant power advantage:

  • Snapdragon XR2 Gen 2: This platform powers Meta's Quest 3S, a more affordable headset. Qualcomm has collaborated on customized mixed reality chipsets for other Quest products, including the Meta Quest 3.

  • Snapdragon AR1 Gen 1: This platform is used in Meta's Ray-Ban smart glasses. These glasses have seen success and sales exceeding expectations, partly due to the integration of Llama. They are increasingly becoming wearable AI devices, receiving new AI features such as location and navigation assistance, real-time speech translation, the ability to answer questions about their environment, and hands-free access to user digital life. The integration allows for multimodal AI models to interpret what the glasses "see" or "hear".

• Their leadership in XR is built on best-in-class high-performance energy-efficient computing, including CPU, GPU, and NPU capabilities, along with specialized engines like digital signal processors (DSPs) and image signal processors.

• They have developed an extensive set of perception algorithms (e.g., head, hand, eye, gaze tracking) that are crucial for XR devices to interact with the environment and serve as inputs. Many of these algorithms are hardened in silicon for optimal performance per watt.

• Qualcomm offers the most complete roadmap for VR, MR, and AR.

• The Qualcomm AI Hub (an online destination for developers) and Qualcomm AI Stack (a unified AI software portfolio) simplify the process for developers to build and optimize AI applications for Snapdragon platforms, supporting a wide range of models and frameworks. This enables a "train on cloud, run on Qualcomm" paradigm.

• XR platform features include 6DoF head tracking and controller capabilities, video pass-through, embedded cellular connectivity, and hybrid computing.

• Qualcomm is engaged with major ecosystem players, including Meta, Google, Microsoft, and Snap. They have long-term strategic collaborations with key partners to drive scale.

• The Meta Horizon OS running on Snapdragon is now open and available to third-party hardware makers, a significant step to expand the device ecosystem.

• Qualcomm is co-designing multiple generations of VR, MR, and AR solutions with Meta, which have been the most successful in the market.

• At the "XR Unlocked" event, Google announced Android XR, with the first device expected later in the year from Samsung, powered by the Snapdragon XR platform.

Research and Development (R&D)

• QUALCOMM competes in industries characterized by rapid technological change, evolving standards, and frequent new product introductions, requiring continuous R&D.

• They have significant engineering resources with expertise across modem, RFIC, RFFE, multimedia, sensor perception, ADAS/AD, advanced SoC (CPU, GPU, NPU), AI, packaging, and other technologies.

• Investment continues in R&D to extend demand for products/technologies and utilize R&D beyond mobile (automotive, IoT), including new modem, multimedia, ADAS/AD, and XR technologies.

• Focused on making it easier for developers to design and deploy applications on their platforms across device categories and industries as part of their diversification strategy.

• Conducts broad, leading R&D across AI, including generative AI, from fundamental to applied research, focusing on power efficiency and personalization for on-device AI.

• Investments are made to provide integrated circuit customers with chipsets designed on leading-edge technology nodes, combining technologies for mobile, automotive, and IoT.

• Supports Android, Windows, Linux, and other client software environments in chipsets.

• R&D is expected to enable customers to improve service performance/value, offer services more affordably, and introduce revenue-generating broadband data services.

• Has R&D centers globally. Uses engineering resources/expertise to develop technologies, applications, and services and make them available to licensees to grow the industry and generate licensing opportunities.

Some concluding remarks

• Primers provide a quick overview of companies, get investors up to speed on important mechanics.

• Quick Takes assume investors are familiar with these and concentrate on investing considerations

• Stay tuned for our upcoming Quick Take on QUALCOMM, discussing finances, valuation, and risks, as well as the progress in the strategic reorientation towards becoming a primier Edge-AI provider.