Tech Newsround – Arm and Qualcomm

Arm & Apple.  

• The biggest winner from the iPhone 16 launch today could be Arm because if Apple moves to the V9 architecture, it will provide a significant jump in the average price that Arm earns on every chip that it sells.
• Alongside its latest iPhone, Apple typically also launches a new chip to run the phone which this year will be the A18.
• Every time an Arm licensee moves from one architecture to another, a new licence agreement is needed and for V9, Arm has been able to negotiate much higher royalty rates.
• This has been one of the main drivers of its excellent financial performance over the last year even as the smartphone market has been struggling.
• According to Counterpoint Research, Apple has 15.7% of the smartphone market the vast majority of which is at the high end.
• Hence, with 15.7% of the market switching over to V9 over the next 3 or 4 years will provide a boost to revenue growth by which time I suspect that the industry will have worked out the best way to deploy AI models on devices rather than in the cloud.
• It makes the most economic sense to deploy models at the edge which combined with better security and privacy, leads me to think that this will be a major growth area as AI becomes more widely available and used by consumers.
• Arm is well positioned here providing another leg to its long-term growth story as one of the enablers of AI, especially at the edge.
• Arm still has a high valuation despite the market weakness, but I suspect that the next few years will provide a level of growth in both revenues and profits that will enable the shares to hang onto their current multiples.

Qualcomm & Intel – Window shopping.

• There is very little at Intel that I think would interest Qualcomm other than the distribution channel and so I suspect that Qualcomm is most likely not going to acquire anything from Intel.
• There is talk of a break-up at Intel which always triggers a bit of window shopping and so I am not surprised to read that Qualcomm is having a look.
• Intel’s chip design expertise is based on the x86 instruction set which is what Qualcomm is competing against and I think it extremely unlikely that Qualcomm wants to start manufacturing.
• However, the one area where Intel is really strong is in its ability to push its products through the channel to the PC makers as well as its partnerships and relationships with the myriad of makers and vendors of electronics and peripherals that make up the PC ecosystem.
• This is where Qualcomm has to build from scratch, and if there is one thing that will slow down its ability to penetrate the market, it is this.
• However, I am far from convinced that this would be a practical or even available asset to acquire and so I still think that this possibility will remain in the realm of media speculation.
• Qualcomm has fallen by 25% over the last couple of months meaning that its valuation has headed back into value territory with its 12month forward PER back to 14.1x.
• I think there is upside to its valuation as very little market share gains from the PC market are in the numbers and I still think it can gain a lot of share.
• I bought Qualcomm at $106 in Q4 2023 and have since thought that I should have bought more.
• Now looks like a pretty good time to add some.