Why Qualcomm's Latest 5G Chip is a Big Problem – Motley's Fool

Some time ago, the giant of wireless technology Qualcomm (NASDAQ: QCOM) unveiled its first commercial 5G cellular modem, known as Snapdragon X50. The chip was a 5G modem only, which meant that it had to be paired with another modem (such as those built into the company's Snapdragon application processors) to handle 4G, 3G and 2G connectivity.

On February 19, however, the company announced its second-generation 5G modem, called Snapdragon X55. This modem not only supports 5G connectivity (and an improvement over the one offered by the company with the Snapdragon X50), but it can also work with older networks.

A Snapdragon X55 chip between the fingers of a person.

Source of the image: Qualcomm.

Let's take a closer look at Qualcomm's overall improvements with this modem and explain why investors should be interested in it.

Even more speed

Qualcomm indicates that the Snapdragon X55 can support 5G download speeds of up to 7 gigabits per second and load speeds of 3 gigabits per second. For some reason, the company has indicated that the Snapdragon X50 offers theoretical download speeds of up to 5 gigabits (I have found no official numbers for maximum download speeds.)

On the LTE plane – since, unlike the Snapdragon X50, the X55 has built-in LTE capabilities – the Snapdragon X55 promises download speeds of up to 2.5 gigabits per second. This is an upgrade of the 2 gigabits per second offered by the company's current Snapdragon X24 LTE modem.

7 nanometer manufacturing

Qualcomm states that the Snapdragon X55 baseband processor is manufactured using an undisclosed 7 nanometer manufacturing technology. While the Qualcomm Snapdragon X24 LTE modem and its future Snapdragon 855 mobile application processor (which, unsurprisingly, incorporates the X24) are both built using 7-nanometer technology, the Snapdragon X50 is manufactured on older technology (Qualcomm does not seem to have revealed that, but it is supposed to be built with 10 nm technology).

The shift to 7-nanometer technology is expected to lead to improved energy efficiency and a smaller chip area, all things being equal. (Note that I did not say anything about the Snapdragon X50 because Qualcomm may have taken advantage of the extra area and the margin of safety to add more features.)

Given that the Snapdragon X55 will mainly be powered by smartphones – devices that are fundamentally limited in terms of space and energy consumption – the transition to the latest 7-nanometer technology is a good thing for the product.

Another thing to note: Qualcomm did not explicitly name the modem manufacturer, but I believe that TSMC (NYSE: TSM) will build this chip and not Samsung (NASDAQOTH: SSNLF). Qualcomm and Samsung have long discussed their partnership for future 5G solutions, as well as the fact that Qualcomm is silent about the manufacturer of this chip (rather than shouting roofs that Samsung will mass-produce 7-nanometer chips for Qualcomm) me that TSMC, not Samsung, who builds this product.

Sampling now, volume later this year

The wireless chip giant claims that the Snapdragon X55 "is currently being sampled for customers and is expected to be integrated into commercial devices by the end of 2019." This means that, from a financial point of view, the Snapdragon X55, as well as any application processor published by Qualcomm with the integrated technology of Snapdragon X55, is really a calendar year / fiscal year 2020.

Why should investors care?

Investors should be concerned about this product announcement for several reasons. First, it shows that Qualcomm is still on top of modem technology: the Snapdragon X55 seems to be the most advanced cellular modem announced to date. Having a strong position in modern technology should strengthen the company's competitive position in mobile application processors (chips with integrated modems).

Second, Qualcomm's executives have indicated in the past that migration to 5G offers the company the opportunity to both sell a richer product line and increase its share of content on smartphones. I think that the Snapdragon X55, as well as the application processors that integrate it internally, together with Qualcomm's RF front-end solutions alongside the chip, should help Qualcomm to increase both the average selling prices of its mobile processors and give a solid momentum content in dollars per smartphone.

These elements could ultimately fuel the growth of Qualcomm's chip business in the coming years, helping to offset the smartphone market that seems to continue to suffer from lower unit shipments.

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