Qualcomm's strong report and guidance were largely anticipated. Now that QCOM is a key chip vendor for the iPhone empire, it is getting a major boost from Apple's substantial winter share gains.
But one number in the report really popped out - Qualcomm is raising its average 3G/4G device selling price estimate by a full $7, into $204-$216 range. That is a stunning hike and could give the stock a multi-week tailwind.
Two other numbers make the guidance particularly sizzling:
- Against all expectations, Qualcomm did not lower European unit guidance. After massive misses from Euro-centric vendors like HTC and Sony Ericsson, this was a jolt. It also implies that the Android vendor comments about European market weakness are suspect. That "market softness" might in fact be market share losses to Apple.
- China/India volume projection rose by 7 Million units. This comes after RFMD cited Chinese 2G weakness for its recent warning. Which means that China may be experiencing faster than anticipated shift from 2G to 3G handsets - not overall weakness of the handset market. The Chinese volume projection hike is an interesting fit with the device ASP increase. Asian 3G prices may be higher than markets have expected.
It's hard not to juxtapose this report and guidance with the stiff recent Nvidia warning. Nvidia cited Tegra 2 weakness as one factor for its substantial revenue softness. Tegra 2, of course, is the engine of Android dual-core smartphones and tablets that are the most direct rivals of iPhone 4S and iPad2 - from Motorola, LG, Samsung, etc.
It is a truism that Apple's strength is reshaping the entire component market. The topic has been widely discussed for a year or two. But the Qualcomm and Nvidia reports hint that the pace of change is even faster than investors anticipated.
Very soon the entire high-end handset/tablet component market from camera modules to processors to displays may be completely at Apple's mercy. Only Samsung's recent success is preventing this from happening right now. If the Android market challenge to Apple fades in 2012, the negotiation power Apple possesses with its component vendors may start to resemble the chokehold Nokia had back in 2007.
Nokia's brief 50-60% domination of the smartphone market was easily shattered by the Apple/Android challenge in 2010. Smartphone volumes were a mere fraction of the overall handset market back then. Now they are about to hit 40% of global phone volumes.
As a new high-end volume leader emerges, smartphones dominate the entire phone industry - and consumers are being locked into a software system gravity well from which few even want to escape. The balance of power between component buyers and component sellers may be about to shift in a fairly radical way over the next 24 months.
