The global baseband industry continues to be dynamic and competitive and the industry has been waiting for a key growth catalyst. In recent years, the baseband industry has seen a sharp decline in 2G and 3G baseband shipments and even the 4G baseband shipment growth appears to be slowing. The global mobile & non-mobile ecosystems have embraced the 5G technology at the Mobile World Congress (MWC) 2019 show at Barcelona. Qualcomm, who played a pivotal role in 4G & 5G commercialisation, has a lot to talk about 5G at the show and rightly so. Since 2016, the company has been working to make 5G a reality and the results can be seen finally. Qualcomm claims to have 30+ 5G design-wins (mostly smartphones). Qualcomm’s X50 discrete single-mode 5G chip and Snapdragon 855 4G SoC are the star chips of the show. Multiple OEMs including Samsung, Xiaomi, LG, HTC, Oppo, ZTE, Lenovo-Motorola and others have announced devices based on Qualcomm’s X50 plus SDM855 5G platform. Qualcomm claims to have over 20+ OEMs and 20+ network operators signed up for its X50 plus SDM855 5G platform.

Not resting on its achievements, Qualcomm has announced a multi-mode X55 5G discrete chip as well as a multi-mode 5G SoC (system-on-chip) and these chips will be commercialised by later this year and 1H 2020, respectively. The integrated 5G SoC chip is a critical for 5G adoption in mid-range devices as the current crop of 5G devices use a dual baseband approach, which puts pressure on costs. The X55 modem moves the modem functionality to a single-chip but still needs an external apps processor. We think a truly integrated 5G SoC (modem plus apps processor integrated into a single chip) will solve the cost and circuit board area concerns. Qualcomm, known for its highly integrated chips, is well-positioned to drive 5G adoption beyond flagship smartphones into mid-range devices. We note that it took two years for 4G devices to get integrated versions but 5G devices appear to get integrated version much faster.

What this means for Qualcomm and the industry? Qualcomm is an R&D powerhouse and baseband modem is core to its semiconductor business. Qualcomm spent just over 25 percent of its revenue on R&D in CY 2018 and a good chunk of this R&D money was spent on pre-5G commercialisation. Qualcomm has no option but to maintain its leadership position in 5G as network technology transitions tend to pressure incumbents. We note that several big name companies (TI, Freescale, Renesas, NXP, Analog Devices, Nokia, ST-Ericsson, Broadcom, Marvell, NVIDIA etc.) exited from the baseband market as these companies couldn’t successfully navigate the technology transitions. Qualcomm is the current baseband market leader with 49 percent revenue share. Historically, Qualcomm capitalised on network technology transitions and improved its addressable market. Qualcomm also gained market share at each network technology transition (2G to 3G and 3G to 4G). For example, during the early 3G to 4G transition, Qualcomm improved its baseband revenue share from 40 percent in 2010 to 66 percent in 2014. Also, we note that Qualcomm’s semiconductor and licensing business revenue grew at 22 percent and 15 percent CAGR between 2010 and 2014.



Thanks to increased 4G baseband competition since 2014, Qualcomm’s baseband share, revenue and profits all took a hit and didn’t return to 2014 levels. Realising this, Qualcomm has expanded its focus beyond mobile basebands and invested in RF front-end, connectivity, IoT, networking, computing and automotive areas. While Qualcomm has tasted some significant success in these new areas, its core mobile business continues to underperform. Qualcomm claims to have over $5 billion revenue from its non-phone component businesses in FY 2018.

We note that factors such as longer smartphone replacement cycles, vertical competition and slower smartphone device growth have all affected Qualcomm’s mobile chip growth since 2014. Can 5G reverse the four consecutive years of revenue decline for Qualcomm? Strategy Analytics believes that 5G has the potential to bring back the much needed growth to Qualcomm’s core mobile business. Our forecast suggests 5G smartphone basebands will grow faster than 4G smartphone basebands did. Unsurprisingly, Qualcomm is focusing on 5G smartphones in the first phase before 5G Release 16 will open up new use cases and opportunities.

5G baseband competitive landscape

Strategy Analytics believes that the 5G baseband market will be a much more competitive one from the beginning, unlike the 4G baseband market. Samsung LSI (Exynos 5100 5G), HiSilicon (Balong 5G 01 & Balong 5000), Intel (XMM 8060 & 8160), MediaTek (Helio M70) and Unisoc (Intel 5G partnership) all set to launch 5G basebands by end of this year or early next year. Despite competition, we believe that Qualcomm is well-positioned to drive 5G feature complexity just like it did in 4G and maintain its technology and market share leadership position. For example, Qualcomm has accelerated the 4G baseband evolution with VoLTE, carrier aggregation, eMTC, envelope tracker, eMBMS, LTE-direct and LTE-unlicensed among others. In addition, Qualcomm’s investments in RF front-end components (antenna, switch, filter, power amplifiers etc.) have helped Qualcomm to provide a complete optimised solution to its customers.

• Qualcomm’s key 5G design-wins at MWC 2019 include Samsung Galaxy S10 5G, Galaxy Fold 5G, Oppo 5G device, Xiaomi Mi Mix 5G, HTC 5G Hub, LG V50 ThinQ, Moto Z3 5G Mod, ZTE Axon 10 Pro 5G, Lenovo 5G Windows 10 PC (2020), InseeGo Hotspot, Sierra Wireless Airprime 5G module, Sony mmWave prototype, NetGear Nighthawk 5G and  OnePlus 7 5G (?) among others. Nokia, Vivo, Google, Microsoft and Fujitsu among others are also expected to announce Qualcomm-based 5G devices at some point this year. 
• At the show, MediaTek has announced that the company is working with Oppo and Vivo to bring 5G devices based on its Helio M70. In addition, the company has indicated that its Helio M70 SoC version will be available by early next year.
• Late last year, Intel has announced its XMM8160 multi-mode 5G platform (X55 equivalent) and the company will ship this platform in 1H 2020. Intel is working with various network operators to qualify its 5G modem platform across networks.
• At MWC 2019, Samsung LSI scored Galaxy Fold 5G and S10 5G design-wins with its Exynos 5100 5G modem. We note that these devices also use Qualcomm’s X50 modem for some regions.
• HiSilicon’s Balong 5000 modem featured in Huawei’s Mate X foldable Android device. We expect Samsung LSI and HiSIlicon to follow-up with 5G SoC versions in 2020 as both companies have proven their integration capabilities in 4G.
• Niche cellular IoT baseband companies Altair (Sony) and Sequans have also set their eyes on 5G. Sequans has partnered with TCL on 5G R&D. We believe the release 16 will unlock the IoT potential of 5G in 2021 and 2022 time frame.
  
  

Key questions for the industry at this point include:

• Will 5G reverse the four consecutive years of revenue decline for Qualcomm? Will 5G organic revenue growth offset the terminated NXP acquisition for Qualcomm?
• Will Qualcomm win back Apple with its multi-mode X55 discrete chip?
• Will Apple look into its own 5G baseband design?
• Will Intel sustain its Apple design-win in 5G and able to expand beyond Apple with SoC solutions?
• How 5G will disrupt MediaTek and Unisoc, who struggled to advance their 4G roadmaps rapidly?
• Will Samsung LSI and HiSilicon sustain their baseband investments and advance roadmaps without external customers?
• How important is RF front-end capability in 5G?

Strategy Analytics has been tracking the global baseband industry players and market developments for a long time and will be closely monitoring the 5G baseband market happenings. We believe the 5G baseband market is set for a strong growth and it will be very important for vendors to seize the initiative to establish their market position early. Despite challenges in the last 12 months in the form of a legal battle with Apple, regulatory battles, the disheartening termination of the NXP deal, distractions from Broadcom’s acquisition attempt and painful restructuring efforts, Qualcomm has executed against all odds and the company has some of the best products in its history on its hands now.