QUALCOMM, Inc. (NASDAQ:QCOM) likes the idea of the connected car, although Citi analysts think it won’t have as big of an impact on the company as China Mobile’s rollout of 4G LTE technology will. Citi analyst Ehud Gelblum and his team see this as a major opportunity for Qualcomm.
Qualcomm on the connected car
At its analyst day, QUALCOMM, Inc. (NASDAQ:QCOM) CEO Paul Jacobs made some very “bullish comments” about the potential he sees for connected cars in the future.
There's a gold rush coming as electric vehicle manufacturers fight for market share, proclaimed David Einhorn at this year's 2021 Sohn Investment Conference. Check out our coverage of the 2021 Sohn Investment Conference here. Q1 2021 hedge fund letters, conferences and more SORRY! This content is exclusively for paying members. SIGN UP HERE If you Read More
“It’s pretty clear that the cars are going to have their own connections for providing services to the drivers and the passengers [and] to provide maintenance information and information about the fleets of cars to the manufacturer,” Citi quotes him as saying.
In spite of Jacobs’ comments, Citi analysts see the total addressable market for QUALCOMM, Inc. (NASDAQ:QCOM) as being only in the $1 billion to $2 billion range. They’re estimating that about 40 million vehicles would be equipped with a chip Qualcomm could sell for between $25 and $50. That’s just a small fraction of how much the company makes from its smartphone and tablet chips.
Tesla, GM makes use of connected car technology
Tesla Motors Inc (NASDAQ:TSLA) has already made good use of its own connected car technology, rolling out a software update to its vehicles in response to two Model S fires. Both occurred when the vehicle ran over a piece of metal in the road, so the automaker was able to send out a software update to increase the speed at which the vehicle lowers itself for better aerodynamics. In addition to Tesla, General Motors Company (NYSE:GM) is also planning to add 4G to most of its 2015 Chevy, GMC, Buick and Cadillac models, which will be available in North America next year.
How Qualcomm could benefit from China Mobile
Citi analysts reiterated their Buy rating on QUALCOMM, Inc. (NASDAQ:QCOM) because of the rollout of 4G technology on China Mobile Ltd. (NYSE:CHL) (HKG:941)’s network. There’s been plenty of talk about how Apple Inc. (NASDAQ:AAPL) could benefit from the rollout of this technology if it makes a deal with the world’s largest carrier, but in reality, it’s companies like Qualcomm and infrastructure companies which will benefit in the near term.
The analysts believe the LTE launch at China Mobile “should drive QCT unit volume and margin” in the second half of Qualcomm’s fiscal year. They see only “minimal negative impact to the QTL royalty stream.” They also note that the “accelerating complexity of LTE” enables QUALCOMM, Inc. (NASDAQ:QCOM)’s oversized research and development budget and two-year head start to get a leg up on its competition in LTE.