Qualcomm – Cars-R-Us.

Picks and shovels of the digital vehicle.

• Qualcomm is showing signs of executing on its automotive ambitions with a 57% increase in its design win pipeline in the last 3 months as well as a pretty clear view of exactly how it is addressing the vehicle opportunity.
• Qualcomm held an analyst day specifically for its automotive group where it outlined how it is addressing automotive, wheeled out some big supporters and updated its financial performance.
• For most observers, automotive has been a minor line item broken out of QCT (Qualcomm Chip Technologies) but it is something I have been keeping an eye on for a couple of years.
• This is because software and semiconductors in the vehicle are going through a fundamental change which is always when there is the best opportunity for disruption.
• Furthermore, some of the existing suppliers with entrenched positions have not accommodated the changing requirements of the OEMs very well which has led to strong interest from vehicle makers in seeking alternatives.
• The flagship automotive product is referred to as Snapdragon Digital Chassis which at its heart is a semiconductor and software offering that will power driver assistance all the way to full autonomy, the vehicle cockpit and infotainment (the way the user interacts with the vehicle).
• The other areas of the vehicle such as body, comfort, and safety are not being directly addressed at the moment as they are likely to be lower value in terms of technology and further away from the user experience.
• This makes sense because user-facing functions and self-driving are the areas that will require by far the most processing, meaning that it is here where Qualcomm can make the most impact.
• This goes alongside all of the usual connectivity chips that Qualcomm has been dominating for years and is so far the biggest expansion outside of its historical core competence.
• This is why it is so crucial that Qualcomm gets this right, and so far, the signs are pretty good.
• BMW, Mercedes, Stellantis, Honda, Great Wall Motors, Google and Amazon all managed to film a short segment saying good things about their partnership with Qualcomm.
• Looking at the range of partners it is clear that automotive is typical of Qualcomm’s horizontal approach.
• For years, Qualcomm has made it easy for handset makers to make 4G and 5G mobile phones by providing chips that work and the software that makes them easy to plug the rest of the phone into.
• The evolving software environment in the vehicle is one of the most complex and variable that I have seen, and Qualcomm is aiming to do for vehicle software exactly what it has done for cellular connectivity.
• So far, the automotive industry likes what it sees which is why the design win pipeline is up by 57% in three months.
• I think that there is plenty of scope for this to expand further as the approach Qualcomm is taking lies well outside of the current battle for the loyalty of the vehicle owner/user.
• As functionality moves to being defined by software rather than hardware in the vehicle, the OEMs need to delight and engage users with more than just cool designs, performance and plush interiors.
• The digital ecosystem players have recognised the opportunity in the vehicle and are showing signs of wanting to take over the user experience in the vehicle which would turn vehicle makers into Android handset makers with wheels.
• RFM research has long concluded that OEMs must at least have a seat at the table when providing digital vehicle services to users and ceding the vehicle to Apple or Google will see them out of the running and unable to monetise digital vehicle services.
• Qualcomm is clearly staying out of this struggle and is instead repeating the exact same strategy that it used in smartphones to make software development in vehicles full of hideously complex software, easy.
• This is not going to drive Qualcomm’s earnings meaningfully for a while given that automotive revenues are small relative to the rest of the business, but the signs over the next 5 to 10 years look good.
• Failing to acquire NXP looked like a disaster at the time, but the current outlook now makes this look like it was a blessing in disguise.
• I continue to think that Qualcomm looks defensive in this environment, and it remains alongside MediaTek and TSMC as the ones I would seriously look at when investing in semiconductors.