Qualcomm sees changes, opportunities in China and in PCsQualcomm sees changes, opportunities in China and in PCs

Qualcomm had a satisfying quarter due in part to strong chip sales in smartphones, according to research firm Canalys, a sister company to Light Reading. However, Qualcomm is experiencing a number of changes to its customer base in China in addition to difficulties in gaining a foothold in the PC market.

For Q3 of this year, Qualcomm had about 24% of the system on a chip (SoC) market share, up 4% year-over-year (YoY), compared to rival MediaTek with a much larger market share of nearly 39% market share, according to Canalys.

Shifts in customer base

A notable change to Qualcomm's customer base in China is the loss of Huawei as a smartphone chip customer. In May, the US Department of Commerce revoked Qualcomm's license to sell semiconductors to Huawei, but Runar Bjørhovde, an analyst with Canalys, said this move hasn't had a huge impact on Qualcomm's bottom line. Huawei has a smaller footprint in the smartphone market and primarily sells to China. Plus, it was only a matter of time before Huawei switched to using its in-house Kirin chip in its smartphones, he added.

In addition, Qualcomm continues to count a number of Chinese companies as customers including OnePlus, Oppo, Vivo and Xiaomi plus smartphone company Honor, which was previously owned by Huawei.

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Qualcomm attributed about half its revenue to China and new smartphone launches from Xiaomi, Oppo and Vivo, said Reuters.

Qualcomm shares increased 4% last week after a solid revenue forecast bolstered "investor optimism about a China-led recovery in the smartphone market," reported Reuters.

That's noteworthy considering the future of US-China trade relations may change as the Trump administration takes over next year.

In addition to chips, Qualcomm provides a number of components to major smartphone vendors such as Apple and Samsung, said Canalys' Bjørhovde.

"[Qualcomm] provides modems in addition to chips so they get quite a lot of revenue from Apple on all these other components," said Bjørhovde. "They've also been quite helped by Samsung with its S series, which has had quite a strong performance over time."

While Apple is a major customer, Qualcomm will need to diversify its revenue sources since Apple is working toward developing its own modem chips to replace Qualcomm modems, reported Reuters.

Revenue diversification

One way Qualcomm has sought to diversify its revenue streams is through the PC market. Qualcomm attempted to put Windows on Arm chips for laptops but has struggled to gain share against Intel, said Bjørhovde. Qualcomm and Arm's partnership is also mired in recent lawsuits with Arm issuing a 60-day notice to Qualcomm that it would cancel its license to use Arm's architecture, reported Bloomberg and Forbes.

Related:Qualcomm sings a song of diversification

"We can see that partnership is definitely not going so well with Arm now canceling the contract with Qualcomm to use Arm on PCs," explained Bjørhovde.

Regardless, the PC market is a tough nut to crack as IT buyers for enterprises are a risk-averse group and more likely to stick with incumbent vendors. Qualcomm is struggling to gain share against longtime PC giants such as Intel and AMD, said Bjørhovde.

Qualcomm's efforts in the PC market will likely continue to be an uphill battle. While the company has made inroads with PC vendors such as Asus, Samsung and Honor, said Bjørhovde, getting Qualcomm's chips onto the major brands of Lenovo, HP and Dell is much harder.

In fiscal Q4, Qualcomm achieved non-GAAP revenues of $10.2 billion including $8.7 billion in chipset business revenues, and $1.5 billion in licensing business revenues, according to Cristiano Amon, president and CEO of Qualcomm.