How Much Does Qualcomm Charge for a Snapdragon?

If you went to try to purchase a smartphone chip without being an OEM or buying in bulk, you might have a pretty hard time. While it may not be so easy to find out how much a given system-on-chip or a modem may cost, we can get a general sense of how much Qualcomm  -- the leading system-on-chip vendor -- gets per chip from the numbers the company gives at its quarterly earnings reports.

Let's look at last year
In Fiscal 2013, Qualcomm shipped 716 million MSM chips. According to Qualcomm's most recent form 10-K, MSM shipments comprise discrete modems, as well as integrated apps processor with cellular and connectivity. It is unclear, however, if these shipments include things such as RF360, discrete connectivity combos, power management IC, and so on. However, since Qualcomm typically sells the entire platform with its MSMs, we can get a pretty decent estimate of the total silicon content per phone powered by a Qualcomm chip.

Total equipment and services revenue came in at $16.49 billion, so a straightforward -- although probably not perfectly accurate -- estimate of the average selling price per platform shipped on Qualcomm's end is about $24. Do note, however, that in the future, Qualcomm is likely to see a mix-up per platform as it gains content share, particularly in connectivity, offset by perhaps stronger growth in the lower end than in the higher end.

Trying to get a handle on cost structure and market size
We know that Qualcomm gets about $24 per platform, with the majority of that either dominated by the modem or the integrated apps processor; but the next question worth asking is how much it costs Qualcomm to build/ship these things. Well, the cost of revenue for QCT during 2013 was $9.82 billion, implying an average cost per platform of $13.72. Note that this includes shipping costs, packaging and test, and so on.

As a quick head-check on how accurate these numbers are, an average selling price per smartphone platform for Qualcomm -- (again, the majority of it dominated by either the discrete modem or the integrated apps processor, most Qualcomm customers use the integrated processor) -- of $24 suggests a rough smartphone and tablet apps processor market of $29 billion, assuming 1 billion smartphone units, 200 million tablet units. This overstates the TAM, as Qualcomm almost exclusively owns the non-Apple high-end apps processor market (higher mix), and these numbers include non-apps processor parts.

Is there room for competition?
At an average platform price of about $24, and with Qualcomm's relatively rich mix, there is probably room for disruption from one or two higher-end players. Intel spends at roughly the same level of Qualcomm and - assuming it can get its execution in order - should be the prime vendor to take share.

MediaTek has done an excellent job at the low end of the market, and has gained pretty significant share in the China 3G/TD-SCDMA market. The company does have ambitions of attacking other markets -- such as the U.S. -- and has some pretty solid momentum; but its dramatically lower R&D spending and apparent laggard status in cellular basebands (Qualcomm and Intel will be shipping cat. 6 LTE-Advanced this quarter; MediaTek is just now shipping cat. 4 LTE), could prove a longer-term headwind despite the shorter-term robust financial performance. At any rate, Qualcomm's $3.7 billion/year in operating expenses in this market makes it a very formidable foe.

Foolish bottom line
Qualcomm's average smartphone platform selling price appears to be about $24. Of course, this would tend to suggest that the selling price of a higher-end product, like the Snapdragon 800 family, would be more in the high $30s/low $40s, as the lower end Snapdragon 400 products probably fetch more along the lines of $10-$15 per unit and dominate the volume.

While competition has been incoming for quite some time, it will be difficult for all but very few to compete with the breadth of the technology that Qualcomm currently offers, with only Intel spending at the level necessary to even have a prayer of longer-term technological parity. 

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Ashraf Eassa owns shares of Intel. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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