Is Qualcomm a Buy?

Qualcomm is the world’s second largest smartphone chipmaker behind MediaTek but dominates the premium segment. They’re now making a push into the AI datacenter space, but first, let’s review how they got here.

In the late 1980s, Qualcomm pioneered CDMA, a wireless communication technology that became foundational to 3G networks worldwide - the breakthrough that allowed smartphones to really scale.

Qualcomm’s CDMA breakthrough contributed to BlackBerry’s downfall. The first iPhone launched in 2007 without 3G, choking AT&T’s network with its browsing-forward data needs. BlackBerry saw this as unsustainable as they built their empire on the opposite premise: that bandwidth was scarce and compression was key. But by 2008, growing 3G networks built on CDMA allowed bandwidth to become more plentiful and the iPhone 3G launched that year. The rest is history.

CDMA lets many phones share the same slice of radio spectrum simultaneously by encoding each conversation with its own mathematical signature. This allows you to squeeze more capacity out of scarce spectrum. Making CDMA work was considered by many to be borderline impossible - it requires precise power control, timing, and interference management.

This research served as a foundation for Qualcomm to build a strong IP portfolio that continues printing money to this day and has helped fund its development ambitions. But Qualcomm is of course known for more than just its IP arm, QTL.

A smartphone requires two main chips: a Processor and a Modem. The processor runs the apps, camera, display, etc. The modem handles talking to cell towers and is extremely hard to build well - it needs to work flawlessly with thousands of different carrier networks, each with its own quirks and frequencies.

Qualcomm was essentially the only company that was world-class at both sides and they combined the two onto one chip - this gave speed, power, and space efficiencies that others essentially couldn’t rival.

In a sign of how technically exceptional Qualcomm has been, Apple has used Qualcomm’s modems since 2011 and is finally phasing them out in 2027 - only after buying Intel’s modem unit for $1 billion in 2019 in order to build their own and which still took another 5 years.

To make CDMA work, Qualcomm had to build specialized chips that could do enormous amounts of repetitive math with the constraint that a phone battery’s power budget was very limited. The company built on decades of this experience to continually develop their NPU, Hexagon, which now handles the on-device AI (“at the edge”) for their chip series, Snapdragon. (Recall that the NPU is the inference workhorse where performance-per-watt is key i.e. power-efficient computation)

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