Conquering Complexity with the Snapdragon 820

Qualcomm’s Powerhouse Shows There’s More to Silicon Selection

Qualcomm has faced a rough ride in the past 12 months. It has weathered activist shareholders, calls for a break-up of its businesses, and structural pressures on the revenue-generating chipset division and the profit-generating licensing unit. Its troubles were compounded by negative publicity for its Snapdragon 810 chip, including the high-profile loss of a major design in the Samsung Galaxy S6 and S6 edge.

But a lot can change in 12 months. The media has been abuzz with reports that Qualcomm is back with a vengeance. Momentum and all-important perception has shifted in Qualcomm’s favour.

This is down to a flurry of product announcements in support of its new flagship Snapdragon 820 chipset. They started with Le Max Pro from LeTV (now LeEco) in Las Vegas in January and were followed by the Samsung Galaxy S7 and S7 edge, LG’s G5, the Xiaomi Mi 5, Sony’s Xperia X Performance and HP’s Elite x3 at Mobile World Congress in February.

It’s a comprehensive list. Announcing Qualcomm’s results for its fiscal 1Q16, CEO Steve Mollenkopf said that that the company has over 100 design wins for Snapdragon 820, a number of which take the chipmaker into new growth segments. Good news for its high-margin flagship is expected to translate into an improvement in the product mix in the second half of the year; the company is aiming for an operating margin for its Qualcomm CDMA Technologies unit of at least 16 percent by its fiscal 4Q16.

Qualcomm’s customers evidently had their challenges with the Snapdragon 810, but with its successor, Qualcomm has undertaken a significant transition. It has completely redesigned components including the Adreno 530 graphics chip, Spectra imaging processor, Hexagon 680 digital signal processor, Qualcomm Smart Protect Security, Kryo CPU and X12 modem.

This list of components reveals the growing complexity of a modern system on chip, and this is without looking at the modem specifications and the related radio frequency technology that sits between modem and antenna. Qualcomm is also addressing this area, through its joint venture with TDK. Radio frequency filters and switches are becoming increasingly important elements in managing the complexity and interference that comes with the use of multiple frequency bands.

It’s clear that Qualcomm is facing significant competition, be it from vertical players such as Samsung and Huawei or rivals such as Intel, MediaTek and Spreadtrum. In a slowing smartphone market, sharper competition becomes a bigger yet inescapable challenge and puts further pressure on average selling prices and margins.

Nonetheless, the latest design wins for the Snapdragon 820 illustrate that chipset selection remains guided by several principles and requirements. While cost is clearly one dimension, silicon customers must look beyond a simple comparison of the discrete costs of two rival chipsets. There are further tangible costs and benefits associated with brand selection, reliability, consistency, global operator certifications and the ability to target multiple markets with a single product. In our view, this is where Qualcomm still has a clear advantage, particularly in terms of connectivity (see Laying the Foundations for 5G).

The chipset debate is all too often characterized as a product of the processing or graphics performance of one chip versus another. The success of the Snapdragon 820 shows that as chipsets become increasingly complex, the factors that a customer must consider become similarly challenging.

Competition will remain intense, but as long as Qualcomm can keep a tight rein on its costs while maintaining its leadership in research and development, there are few signs that any one competitor can rival Qualcomm across a broad range of market segments and prices.