On Thursday February 10, 2011 in a change to its long-standing strategy of developing integrated processors, Qualcomm revealed details of its first stand-alone apps processor, APQ8060.

Also, HP announced new webOS devices including the HP Veer, Pre 3 and TouchPad tablet. All three products feature Qualcomm's Snapdragon processors. What's really interesting is that HP's Wi-Fi-only TouchPad spec sheet listed an apps processor product from Qualcomm, the APQ8060, which appears to be a stand-alone apps processor variant of Qualcomm's 3G/4G version MSM8x60. Qualcomm so far has had limited success in the tablet market with design-wins at Dell, Huawei and Viewsonic. The HP TouchPad raises Qualcomm's profile in the tablet market and makes it a strong contender.

As we noted previously in our reports, the tablet market is both a threat and opportunity for baseband-integrated vendors, especially vendors who rely on baseband-integrated products. It's a near-term threat because it will leave integrated vendors without apps processor products to address the Wi-Fi-only tablet market. It's a long-term opportunity as mobile operators push for 3G / 4G connectivity to increase their mobile broadband subscriptions, a favorable scenario to Qualcomm.

We think Qualcomm's recent Atheros acquisition and the latest APQ8060 stand-alone apps processor product address this near-term tablet market threat as Qualcomm can compete for more semiconductor dollar content in a wide variety of markets where 3G / 4G connectivity is currently not that important. Over time, many of these product categories will feature 3G / 4G connectivity, playing to the strength of baseband vendors such as Qualcomm.

As for smartphones, we continue to believe that integration will continue to win as the smartphone market fragments into different tiers. This week Broadcom announced its first HSPA+ smartphone apps processor BCM28150 which integrates 1.1GHz dual ARM Cortex-A9 cores. This product is similar to Qualcomm's MSM8x60 and ST-Ericsson's U8500 / U5500. We estimate that 70 percent of smartphones will be shipped with a baseband-integrated apps processor in 2015. Qualcomm, ST-Ericsson, Broadcom, Renesas, Intel, MediaTek and Marvell are expected to be leading integrated apps processor vendors by 2015.

Qualcomm, Gold sponsor of the 2009 Symbian Exchange and Exposition, today announced a new subsidiary called QuIC (Qualcomm Innovation Center, Inc) to focus on optimizing open source software such as Android, Symbian and Chrome to its wireless chipsets. Qualcomm settled its legal disputes with Nokia last year and earlier this year Nokia awarded a 3G / 3.5G design-win to Qualcomm. Qualcomm agreed to port Symbian operating system to its MSM7000 and 8000 series chips and Nokia's handsets based on this partnership are expected to debut in 2010.

We believe that Qualcomm will play an important role in Nokia's high-end smartphone portfolio in the coming years as Nokia continues with its multi-vendor strategy for baseband suppliers.  Nokia's previous custom ASIC approach, primarily using Texas Instruments (TI), is gradually reducing and Broadcom, ST-Ericsson and Qualcomm will ramp up at Nokia to compensate for this. We expect Nokia to use Qualcomm and ST-Ericsson in the high-end portfolio while Infineon and Broadcom are expected to play a role in the low-end to mid-range portfolio. It is worth noting that with the exception of Infineon, the remaining three are all fabless semiconductor companies. This is in line with Nokia's strategy to adopt standard off-the-shelf ASSP solutions instead of custom ASICs. Earlier Texas Instruments didn't have a 3G baseband design of its own and acted like a foundry for Nokia's in-house designs.

Currently Qualcomm has a relatively weak position in the smartphone market primarily because it did not support the Symbian OS. However, the company's recent settlement with Nokia, its SnapDragon processors and multiple Android and Windows Mobile design-wins could potentially make it competitive in the smartphone market. We believe that initiatives such as QuIC could contribute positive results in improving Qualcomm's smartphone position.

Sravan Kundojjala