Qualcomm Needs To Change Its Business Model To Survive
Source: Alpha Max
Summary
Qualcomm’s revenues and earnings are showing signs of a declining trend.
The company should follow IBM to become a diversified cloud player.
Qualcomm's (NASDAQ:QCOM) revenues and earnings are showing signs of a declining trend. The company has witnessed this trend over the past one year. As a result, its share price is also falling. As noted by Fortune, Qualcomm's president Derek Aberle believes that Qualcomm is well positioned to make acquisitions with its huge cash reserve of nearly $31 billion. In the article in Fortune, renowned author Stacey Higginbotham said:
Instead of one monolithic product category like the smartphone or a laptop computer, there are dozens that require slightly different versions of Qualcomm's chips such as drones, wearable devices or medical equipment. This requires a change in how Qualcomm does business and how it structures its business.
I agree with the author and believe that Qualcomm's management should prudently use the cash reserve to grow the data center business and readjust the existing business model with an emphasis on cloud computing.
QCOM Chart
Data Center Business Could Save Qualcomm
Qualcomm is facing fierce competition in the mobile baseband market. In 2013, almost 95% of this market was under Qualcomm's control, which was reduced to 61% in the first quarter of 2015, while MediaTek's market share increased to 18%. Further, Samsung (OTC:SSNLF) is also becoming Qualcomm's competitor and planning to use its own chips in its new smartphones. Amid such a scenario, activist investor Jana Partners is forcing the company to split its QTL and QCT businesses. I believe the new data center business could now save Qualcomm.
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