Qualcomm – Tooth and nail.

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This time around, Qualcomm should fight.

  • I think Qualcomm will best serve its shareholders by fighting tooth and nail to halt the fall of royalty rates that has been going on for the last 9 years.
  • The fight between Apple and Qualcomm is a sure indicator that life in the smartphone market is getting tougher which came to light in Qualcomm’s latest earnings release.
  • FQ1 17A revenues / Adj-EPS were $6.0bn / $1.19 compared to consensus estimates of $6.11bn / $1.18.
  • Guidance was very slightly weak with FQ2 17E revenues / Adj-EPS of $5.5bn – $6.3bn / $1.15 – $1.25 compared to consensus of $5.9bn / $1.19.
  • Apple’s dispute with Qualcomm is nothing new and in fact from a brief examination of Apple’s complaint and Qualcomm’s response, it is clear that while times have changed, the arguments remain broadly the same.
  • Between 2006 and 2008, Qualcomm was embroiled in a bloody and bitter fight with Nokia which at the time was in the same position that Apple finds itself today.
  • At that time, Nokia made almost all of the mobile phone industry’s profits and so it was the largest payer of royalties to Qualcomm.
  • When its contract expired, it sought to lower the rate it was paying to Qualcomm and when negotiation did not work it resorted to the courts.
  • At the time, I believed that Qualcomm had the advantage and would eventually win but Qualcomm decided to settle with Nokia in 2008.
  • Although the real details were not disclosed, I calculated at the time that this resulted in a new royalty rate of around 2.3% down from the old rate of 4.1% (of the wholesale price of the device).
  • The problem with this is that everyone else was paying 4.1% and then went on to demand the same deal as Nokia.
  • More recently, Qualcomm has done a deal with China where the effective rate appears to be around 1% which could very well a further decline in the overall global royalty rate that Qualcomm receives for its IP.
  • This is the heart of the problem with patents as there is no real way to determine what should be paid to for them.
  • I have long believed that patents are worth either:
    • First: what an entity is prepared to pay for them or
    • Second: the present value of the cash flows that the patent generates.
  • This is why historical precedent is so important when it comes to patent licencing and here Qualcomm has a huge advantage.
  • Qualcomm has hundreds of agreements and more than 20 years of history as evidence that its agreements have not damaged the mobile industry, in fact quite the reverse.
  • The issue of course is that Apple simply wants a lower royalty rate and even the terms of the deal in China appear not to be low enough.
  • Qualcomm claims Apple has rejected terms that are consistent with the deal it did in China and upon which it has struck most of its Chinese licences.
  • The problem as I see it is that if Qualcomm gives Apple a discount then the rate paid by everyone will go down yet again and where it will end is impossible to tell.
  • By fighting against Apple, it has a chance to arrest the general fall of royalty rates across the industry and stabilise them at what I would estimate will end up at around 1%.
  • This is why Qualcomm must fight as I think that the future of its IP licensing business depends on it winning the second time around.
  • It will be painful and expensive but I can’t see how Qualcomm has much choice.

ARM vs. Intel – Silver bullet?

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Last time it was software. This time its emulators 

  • Qualcomm and Microsoft have announced that Windows is once again coming to the ARM processor but this time the approach is completely different to the disaster that was Windows RT.
  • In Windows RT, Microsoft modified Windows 8 such that it would work on an ARM processor and in the process killed flexibility and backwards compatibility to legacy software.
  • The result was a platform that was shunned by both developers and users, completely killing any hope that ARM would gain penetration in Intel’s home turf of PCs.
  • The fact that Intel has cut its lower end Atom line of products that aimed to compete with ARM in Android tablets has left space in the market for these products to grow into.
  • This time the approach is completely different as Qualcomm and Microsoft have produced an x86 emulator that fools the software into thinking that there is an x86 chip present.
  • The net result is that any Win32 and universal Windows app will run on the device with no modifications being required by the developer.
  • The net result is hoped to be cheaper, fan-less, always-on, mid to low end PCs that have longer battery life than their counterparts powered by Intel.
  • Qualcomm and Microsoft have also promised that Adobe Photoshop, Microsoft Office and Windows 10 games will all run on these products and it is here that I find the big caveat in this strategy.
  • This caveat is performance.
  • Intel processors may be power hogs but they offer blistering performance in real world devices as well as in benchmark tests.
  • ARM has been able to match some of the benchmarks but has never been able to come close to Intel in real devices.
  • This is why the mention of Photoshop, Office and games is so important as these three are well known to be very processor intensive.
  • Their requirements are so high that the software is written directly to the processor (written to the metal) to avoid any lags created by going to the processor via the operating system.
  • This is where the problem will occur as processor heavy apps will no longer be written directly to the metal but instead will be going through the emulator.
  • The emulator process is as follows:
    1. Translate requests from the x86 programs sitting on top of it into the RISC instruction set that ARM understands.
    2. Execute the request on the ARM processor.
    3. Translate the results back into the x86 instruction set so that the app can run.
  • Consequently, the emulator will incur additional processing overhead as well as consume power.
  • The big questions are how much will it consume and will it have an impact on the overall user experience?
  • For Intel, this is a critical question because if there is no impact it could see its market share in the mid-range PC market (most of the volume) come under serious threat.
  • In Q3 16A Intel reported non-GAAP gross margin of 64.8% compared to Qualcomm at 58.9% but if I remove the profits from licencing, I estimate that Qualcomm’s chip gross margin is around 40%.
  • Consequently, if Qualcomm’s Snapdragon chipset plus the emulator can match Intel’s performance, Intel will have to cut its prices to stay in contention.
  • This could see its gross margin come under sustained pressure as the first real challenge to its monopoly finally hits home.
  • History is on Intel’s side as emulators on battery powered devices have always impacted the user experience so much that the experience failed to win over users.
  • In order to put pressure on Intel, the Qualcomm powered Windows 10 devices will have offer the same level of functionality and performance, better battery life as well as a cheaper price.
  • These are my three criteria for Qualcomm to really challenge Intel and success will come down to the quality of the emulator that it has created.
  • Qualcomm will also need to work closely with the device makers as there are endless hardware configurations for Windows 10 PCs and clumsy integration could easily make a complete mess of the elegant product that Qualcomm and Microsoft have created.
  • The first devices will be available early 2017 (launch at CES 2017 looks likely) and it is by these that Intel’s outlook will be judged.
  • This is obviously negative for Intel but it is worth remembering that every attempt to dislodge Intel to date has been a miserable failure.

Intel – Data dreaming

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Intel is doing what it must to keep its position in the Data Centre. 

  • Intel has launched its attack on the field of Artificial Intelligence (AI) with a series of initiatives aimed at easing the compute load but seems to completely miss the fact that the real challenges of AI are based on software not hardware.
  • At a special event in San Francisco, Intel detailed its strategy to address AI and at the same time relaunched an AI compute platform it acquired from Nervana.
  • Intel’ strategy includes:
    • First: A new Intel product called Knight’s Crest that tightly integrates Xeon processor with Nervana’s computing platform that is built from the ground up for AI.
    • Second: An update to the Xeon Phi processors (Kinghts Mill) that will be available in 2017 that will deliver a 4x improvement in AI computations.
    • Third: Intel has launched a series of initiatives to ensure that the platform it is offering is both easy to use and as widely available as possible.
    • This includes the release of developer tools and a series of initiatives aimed at driving engagement with the AI community, higher education and schools.
  • This strategy is exactly what Intel needs to be doing as it plays directly to its strengths in terms of designing the best performing processors but its commentary shows that it has not understood what the big challenges of AI are.
  • Intel confidently expects that the Intel Nervana platform will provide a dramatic reduction in the time required to train neural networks and promises to deliver a 100x improvement in performance by 2020.
  • However, I think that Intel has missed the fact that the big challenges faced by AI today have very little to do with the ability to crunch data.
  • The biggest problems with AI are:
    • A vast amount of data is needed to train an AI because the algorithm needs to see a lot of examples before it can draw any conclusions.
    • A trained AI cannot transfer what it has learned to any other task.
    • Building and adjusting the models during training is a manual and very time consuming task.
  • I believe that it is these issues that are holding up progress in AI and no amount of raw horsepower is going to meaningfully speed up the solution of any of these problems.
  • Consequently, while Intel might deliver a 100x increase in performance in number crunching, it won’t be until the programmers have figured out how to train AIs with less data or to have the machines build their own models that AI takes a big leap forward.
  • The net result here is that Intel has produced a product line-up that should help preserve its dominant position in data centre processors but it will not suddenly make Intel a nerve centre for AI.
  • If Intel can encourage all of the AI industry to run its models on Intel processors, then the threat from ARM in the data centre will be meaningfully reduced.
  • Intel is merely doing what it must to ensure that its hugely dominant and highly profitable products are relevant for the next generation of data centre computation.

Qualcomm vs. Intel – Storm in a teacup.

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Qualcomm thrashes Intel but not where it really matters. 

  • It appears that Qualcomm has once again demonstrated superiority over its peers when it comes to radio but I think it highly unlikely that users will notice.
  • Radio performance analysis specialists Cellular Insights have run a series of tests on the iPhone 7 powered by Qualcomm’s MDM9645M modem and the iPhone 7 powered by Intel’s XMM7360 modem to compare radio performance.
  • The results are startling and much more so than in the infamous “chipgate” episode where the A9 (iPhone 6s) made by TSMC resulted in 5-7% battery life than the same chip made by Samsung.
  • In this case the Qualcomm modem has consistently outperformed the Intel modem on 4G by 30% when the signal was moderate and 75% when the signal was at its weakest.
  • When the signal was at full strength, both modems performed similarly.
  • This does not come as a huge surprise as Qualcomm modems have for years been consistently better at performing in non-ideal radio environments giving it a major point of differentiation.
  • This difference is far greater than it was for chipgate but I doubt whether this is going to have users scrambling to check the model numbers of their devices prior to purchase.
    • First: Battery life is a major issue for every smartphone and is a concept that is very easily grasped by the consumer.
    • As long as there is a connection and the service works, most users will be satisfied, meaning that a difference in speed is less likely to be noticed.
    • A device that does not turn on or fails right at a critical moment is far more noticeable.
    • Second: Bleeding edge.
    • What Cellular Insights has measured is performance at the bleeding edge.
    • For example, in band 4 at -120dBm (very weak radio) Qualcomm manages around 30Mbps while Intel does around 12Mbps.
    • When I look at the Digital Life pie of smartphone usage there is not a single service that I think will be noticeably degraded by that difference to the point where the user will blame the radio.
    • Furthermore, almost all networks still have an underlay of 3G meaning that user will have some data coverage even in the advent that 4G fails completely.
  • Most tellingly of all is the fact that the iPhone 7 has been widely available for over a month and there has been not a single murmur from reviewers or users that one version of the device has a better radio than the other.
  • Consequently, I think that posterity will take note of this difference and move on with no real impact being felt in shipments of one variant or the other.
  • However, for Qualcomm this is an important demonstration that it remains peerless when it comes to radio modems.
  • This is critically important as this test is likely to influence device makers when they are selecting which modems to use in their products giving Qualcomm slightly better pricing power.
  • The general consensus out there is that radio modems are beginning to commoditise as LTE matures as a standard but this test clearly shows that this is not the case.
  • Despite this good news, Qualcomm still needs to expand its horizons into other device categories to keep growth going as smartphones are grinding to halt.
  • This is where its smart drone, IP camera reference platform and potential purchase of NXP semiconductors come into play.
  • This is bad news for Intel but I think it can quite easily shake it off as its performance inside the iPhone 7 is clearly good enough.

Softbank & ARM – We’ll be back!

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I think ARM could return to the market in 5 to 10 years. 

  • SoftBank and ARM have announced that SoftBank will acquire ARM for GBP17.0 per share in cash representing a 43% premium and a total price of $31.6bn.
  • From ARM’s perspective the rationale for the deal is clear as:
    • First: ARM shareholders are getting a pretty good deal.
    • With the rapid slowdown in ARM’s core market and the difficulties being experienced by many of its customers, investors are unlikely to see GBP17.0 on the share price in the foreseeable future.
    • From that perspective ARM’s board have a fiduciary duty to accept an acquisition if it is deemed to be in the interests of shareholders.
    • Second: SoftBank has committed to substantially ramp up investments, particularly in IoT, which is something that as an independent company ARM would never have been able to do.
    • Third: SoftBank has committed to maintain ARM’s independence, pretty much exactly the way it is, which will have been critical to ensuring that customers, partners and users of ARM’s technology are comfortable with the acquisition.
  • However, from SoftBank’s perspective the acquisition is less obvious:
    • First: ARM is a long way outside of the sorts of areas where SoftBank has historically invested and there does not seem to any fit with anything else that it does.
    • Second: One potential reason for the acquisition would be to use ARM as the foundation upon which to build the next Intel but I am certain that this is a non-starter.
    • This is because there is no way that ARM’s existing customers and partners would stand idly by while SoftBank builds a competitor while owning technology upon which they have become dependent.
    • Third: The 30% appreciation of the Japanese Yen and the flat-line of ARM’s share price over the last 12 months means that the transaction is 30% cheaper for SoftBank than it was 12 months ago.
    • Consequently, this investment could be a vehicle for investing in the recovery of the pound but it looks like that SoftBank’s interest predates the recent 10% collapse in the GBP value.
  • It would appear that SoftBank aims to earn its return on the money invested through an expected appreciation of the GBP once Brexit has been executed and from returns on the investments that will now be possible by ARM.
  • I expect that these will be aimed at pushing ARM’s processor into more industry verticals such as servers, IoT, automotive and so on but also at increasing the degree to which ARM’s technology is used in device chips.
  • This will have the effect of both increasing volume (more devices sold using ARM) and increasing price (more ARM technology used in each device).
  • In the long-term, I can’t see any reason why SoftBank would want to hold onto this as there is no strategic fit, synergies or integration benefit to be had from owning ARM.
  • Therefore, I suspect that if SoftBank is successful at increasing’s ARM’s position through accelerated investments, we will see ARM return to the market in the form of another IPO just at a much higher level in 5 to 10 years’ time.

Yahoo and Intel Q1 16A – Falls at the first.

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Results season off to a tough start

Intel Q1 16A

  • Intel reported a difficult set of results and cut 10% of its workforce as the server business can no longer compensate for the damage being done by the weakness in PCs.
  • Q1 16A revenues / EPS were $13.7bn / $0.42 broadly in line with forecasts of $13.8bn / $0.37 but the outlook was weak.
  • Q2 16E revenues are expected to be around $13.5bn with gross margins around 61% which compared unfavourably with consensus at $14.2bn / 62%.
  • The problem remains the PC market which fell nearly 10% in Q1 16A as content consumers continue to desert the platform.
  • I still think that the PC market will stabilise once all these users have left, but it is taking longer than I originally anticipated.
  • With the data centre business beginning to slow down, Intel has to look elsewhere to make up the difference.
  • Here, it will be mobile, Internet of Things, Wearables, automotive and so on where Intel will be looking but this is easier said than done.
  • Intel has been struggling in mobile for 15 years despite vast investments and the ARM processor remains a much better proposition for many of the segments that Intel is hoping to address.
  • The job reductions are clearly aimed at realigning Intel to the new reality it faces as well as preserving its superb profitability until the other business lines can be brought up to speed.
  • With Intel’s history outside of its core markets, this will be a big ask and with ARM finally having a credible go at the server market, the immediate term outlook remains very difficult.

Yahoo! Q1 16A

  • Yahoo reported results that just beat the very low expectations set by management but underneath the veneer, I see declining engagement in mobile.
  • Q1 16A revenues-ex TAC / Adj-EPS were $859m / $0.08 compared to forecasts of $847m / $0.08 but guidance for Q2 16E missed again.
  • Q2 16E revenues are expected to be $810m-$850m ($830m midpoint) compared to consensus at $860m.
  • Yahoo is now struggling with video advertising which is one area where all of its peers are seeing strong growth highlighting again how bad the execution has become at Yahoo.
  • Furthermore, I see weakness in mobile.
  • Yahoo generated $250m in revenues from mobile devices but benchmarked (see here) on its already dismal performance in mobile in Q4 15A, I was expecting $270m in Q1 16A.
  • In Q4 15A, RFM calculated that Yahoo managed to monetise 12% of the opportunity that it has in mobile which fell to 11% in Q1 16A.
  • Yahoo refused to be drawn on any aspect of the sale process which I think is likely to end with Yahoo selling its core assets at a very low price.
  • This is likely to be positive for the share price as the core value of Alibaba and Yahoo Japan should be unlocked when the assets are separated.
  • However, given the increasing problems that Yahoo has in both mobile and video, I see risks to FY 16E guidance of $3.4bn-$3.6bn which will be high in the minds of all potential acquirers of the core business.
  • There is huge value in Yahoo shares but it still looks like a value trap as these results indicate that things are getting worse not better.

 

Samsung Q1 16A – Forgotten jewel

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Semiconductors remain the real engine of growth.

  • Samsung reported good results and I think that it is both handsets and semiconductors that have bolstered profitability.
  • Q1 16A revenues / EBIT were approximately KRW 49tn / KRW 6.6tn nicely ahead of consensus at KRW 48.8tn / KRW 5.5tn and RFM at KRW 48.8tn / KRW 5.5tn.
  • The initial figures for the Galaxy s7 look to have been much stronger than the Galaxy s6 mainly as a result of its lower price.
  • The s7 was also available a month earlier than the s6 giving it more time to have a positive impact on the Q1 16A figures.
  • Although all of the attention is being placed on the handset business, I suspect that Device Solutions also contributed to the better than expected figures.
  • Samsung has reported revenues very close to RFM forecasts so the improvement in profit has all been about an improvement in margin.
  • If I allocate all of the “extra” KRW 1.1tn of operating profit to the handset business then margins were probably around 14% rather than the 9-10% where they have been for the last 5 quarters.
  • I think it unlikely that a single model being available for only part of the quarter could have been responsible for such a large swing in profitability.
  • Consequently, I suspect that the semiconductor business has also had an impact on these figures.
  • Q4 15A was a difficult quarter for the semiconductor business as an unusually weak forecastforf Q1 16A demand caused margins to dip to 21% from the 28-30% it had been enjoying during 2015.
  • The resulting inventory correction in adjusting to a weakening market in 2016 caused margin pressure.
  • Now that this correction appears to have been completed, it looks like the margins at Semiconductors as been able to bounce back nicely.
  • Consequently I think that margins in handsets have come back to around 11% compared to 8.9% in Q4 15A and semiconductors have bounced back to around 27% from 21.2% in Q4 15A.
  • This is good news because in the medium term, the growth story in Samsung Electronics is all about the semiconductor business steadily expanding its revenues at its historically, excellent margins.
  • This thesis also requires for the handset business to keep its margins flat at around 9-11%.
  • In this regard, Q1 16A looks to have been a good quarter and allays my fears from Q4 15A that the semiconductor business was slipping.
  • Samsung’s shares have already rallied on the back of good Q1 16A results but I think that the shares remain good value to KRW1.56m (22% from here).
  • Samsung along with Microsoft remain my top choices although I can see short-term upside in Google as well very low risk of downside in Apple.

Technology industry – Broken rhythm

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The breaking of Moore’s Law will make software even more important.

  • Intel’s significant change in the rhythm of its die shrinks is the biggest indication yet that Moore’s Law is finally beginning to break down.
  • Since before almost any of us can remember, the technology industry has been governed by the concept of Moore’s Law.
  • This states that the number of transistors inside an integrated circuit will double every two years or so.
  • This has had massive repercussions because in practice it means that computing power has doubled every 2 years while the cost has stayed the same.
  • It is this law that has underpinned the breakneck pace of innovation in the hardware industry and has allowed many companies to compete by producing cutting edge hardware.
  • In its latest 10K filing, Intel has stated that its Tick (process) – Tock (architecture) rhythm before moving to another geometry will now have an extra stage (optimisation) added making three stages rather than two.
  • In practice this means that Intel will spend longer on the 14nm and below geometries with three product generations per geometry rather than two.
  • I suspect that it has done this for reasons:
    • First. Each geometry migration is meaningfully more difficult than the last, requiring more time to get yields to the point where they are commercially viable.
    • Second. The cost of each migration is also increasing substantially necessitating greater revenues in order to make a return on the investment made.
    • Third. The industry is rapidly approaching a time where smartphones and tablets have enough computing power meaning that technical specifications will no longer carry a high price premium.
  • For Intel, this represents a huge risk.
  • This is because it has always competed on its technical prowess in being able to make transistors so small that its devices could always outperform those of the competition.
  • By lengthening the amount of time it spends on a particular geometry, Intel will give the competition more time to catch up and offer an equivalent product at a much lower price.
  • However, these days how the silicon is implemented can be more important when it comes to performance than the exact specifications of the silicon itself.
  • Consequently, it looks like Intel is intending to compete along these lines more in the future rather than marching as quickly as it can to smaller and smaller geometries.
  • For the rest of the technology industry it is an indication that the speed of commoditisation as going to accelerate even more than it has done already.
  • As smartphones and tablets become powerful enough to do almost anything that the user is likely to expect, the value attributed to adding even more power on top will vanish.
  • This will mean that differentiation will move even more into the functionality and into the software that sits on top of the hardware.
  • This will be true for all devices not just smartphones and tablets but TVs, home appliances, consoles, wearables and so on as they become relevant to the Digital Life and Digital Work ecosystems.
  • The ecosystem is the glue that holds all of a user’s Digital Life together in a seamless, easy to use and fun way.
  • It is here where differentiation will occur and where the winners of the technology industry will earn their profits.
  • It comes as no surprise to me that the ecosystem companies: Apple, Microsoft, Google, Baidu, Alibaba, Tencent, Amazon and Facebook have a greater market capitalisation than almost all of the others combined.
  • There are of course exceptions to this which tend to be companies that have developed a sustainable differentiation in hardware.
  • Examples of this are ARM which owns the core processor technology for mobile devices, Qualcomm which has an edge in cutting edge cellular radio and MediaTek through its low cost production and media expertise.
  • For everyone else stuck in the middle, the choices are to either eke out a commodity existence (like Samsung does very well) or try and differentiate in the ecosystem.
  • It is the companies that make this bold choice that are likely to outperform the most but at the same time they also carry the greatest risk.

Samsung, QCOM & TSMC – Win Win Lose

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Qualcomm and Samsung get one over TSMC.

  • Despite losing out to Samsung’s in house Exynos apps processor in the Galaxy s6, Qualcomm looks to be back on track for the flagship device in 2016E.
  • There were problems with the Snapdragon 810.
    • Firstly, in Samsung’s hands it caused its device to overheat.
    • I suspect that this actually had little to do with Qualcomm (see here), but it was an issue when it came to adoption of the 810.
    • Secondly, the Snapdragon uses a standard ARM designed processor rather than Qualcomm’s own design using ARM’s IP.
    • Qualcomm has long used its own designs in its chips and has been able to achieve better performance as a result.
  • Consequently, the Snapdragon 810 just did not work well for Samsung prompting it to use its in house processor.
  • However, the Exynos has no on board modem meaning that another modem chip is required which increases costs.
  • At the same time, Samsung has ramped up its 14nm production capacity and it looks like Qualcomm will be using that for the Snapdragon 820 rather than TSMC.
  • Qualcomm has typically used TSMC for its leading edge chips due to its superb execution capability at the leading edge.
  • This has three benefits for both Qualcomm and Samsung.
    • First. This will make the hurdle much lower for Samsung to use the Snapdragon 820 in its next flagship product.
    • This is because the total cost to Samsung Electronics of using Qualcomm will be meaningfully lower.
    • Instead of 49% gross margin accruing to TSMC, that margin will stay inside Samsung, significantly reducing the overall cost of using Qualcomm compared to its in house chip.
    • Second. Samsung will no longer have to use a companion modem as the 820 has the modem on board which will reduce costs further.
    • Third. As the Snapdragon 820 will use Qualcomm’s own processor design, the performance should be better.
  • This will also help Qualcomm’s gross margin as Samsung LSI is in ramp up phase and is still prepared to accept lower gross margin in order to gain share compared to TSMC which is holding steady at 49%.
  • The real loser here is TSMC.
  • Samsung has managed to get a technical edge over TSMC by going to 14nm early, which combined with keeping more revenues in house, can reap greater benefits by using Qualcomm than before.
  • Despite this benefit, I still see Samsung struggling to return to its former glory in handsets and am nervous that management has set market expectations too high.
  • I would prefer Microsoft or Google for exposure to the digital mobile ecosystem.

 

 

MWC 15 – Day 2 – Different strokes

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Both MediaTek and Jolla raise eyebrows at MWC 2015.

MediaTek

  • It seems like MediaTek has been around for ages but it is a very different company now than it was even 12 months ago.
  • Most people think of it as the cheap and cheerful vendor of vast volumes of low end chips but things have evolved.
  • 12 months ago MediaTek launched its awareness campaign around “Everyday Genius” and since then it has built on that with the launch of “Helio”, a brand to compete against Snapdragon.
  • This message appears to be much more than just fluff as this MWC has seen MediaTek launch products that bring these marketing messages to life.
  • Furthermore, MediaTek’s strong presence in media devices has been put to good use by transferring technology into mobile.
  • The rapid autofocus, dynamic contrast for display visibility in very bright light, ultra slow-motion are good examples of technology that has come from the media side but translate into features that are differentiating in mobile.
  • This goes hand in hand with the launch of a range of chipsets that highlight the move into competing on performance not just on price.
  • The LTE modem is still missing but MediaTek is planning on having Cat 6 LTE sometime in H2 2015E.
  • These launches fit nicely into the strategy that is laid out but the real proof will come when it is seen how well these devices perform in the wild relative to their headline specifications.
  • The mobile chipset merchant market is no longer comprised of a technology leader and a cost leader but two companies that are competing hard against each other at most levels of the market.
  • This makes it increasingly difficult for others to fare well in this market and I suspect that exits and consolidation will continue.

Jolla

  • The brave sailors of the Sailfish OS received a massive boost with the announcement that Intel will now also support the platform.
  • This combined with a nice update to the platform has propelled Jolla to be a talking point at the show.
  • I strongly suspect that a partnership with Intel will bring next to no commercial benefit but it hugely increases Jolla’s credibility.
  • The fact that Intel thinks that Sailfish is worthy of consideration will make it much easier for Jolla to get access to the large Chinese Internet players all of whom are trying to create their own ecosystems.
  • In this regard Jolla along with Ubuntu, Tizen and Firefox are the main options for anyone looking to create an ecosystem that excludes Google.
  • This appears to be exactly what the Chinese want and it also makes it possible for any handset vendor who makes GMS compliant devices outside of China to get involved.
  • Tizen is seen by many to be the child of Samsung and Firefox is very low end, leaving Sailfish and Ubuntu as the strongest contenders to be the basis of a Chinese ecosystem.
  • Furthermore, Jolla offers good compatibility with Android via its use of Myriad’s Alien emulator, and claims to have tweaked this such that the app performance has been vastly improved.
  • This means that the Android apps should run pretty well on Sailfish and meaningfully reduces the disadvantage that Jolla suffers by having no app store of its own.
  • With the device business now self-funded through crowd sourcing and $50m in the bank, Jolla has some resources to play with.
  • Jolla has survived the rough seas of the last 18 months and the future is looking better than it has for quite some time.