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5G ushers in more demand for Qualcomm, other radio chipmakers

As the 5G market begins to evolve, chip companies able to overcome the challenges of high-speed radio networking are preparing to cash in.

QUALCOMM Inc. used its most recent quarterly earnings release to focus attention on the growing importance of sophisticated radio-frequency networking capabilities in 5G products, which company officials predicted would drive double-digit sales growth in the years ahead. Its competitors are eyeing the growth potential of the radio chip market as well.

Delivering the full potential of 5G technology is one of the industry's biggest challenges due in part to the physics of radio-frequency networking.

Every mobile phone needs the same basic components: a modem to convert digital data from the processor into a format that can be sent across a wireless network link, a radio-frequency component that transmits and receives the signals that connect the phone to the network, and a set of antennas to receive the signals. 5G phones need a lot more components than earlier handsets, however.

4G phones operate in a single, narrow frequency band, allowing device makers to get away with building the modem, radio-frequency unit and antennas together as a single piece. 5G devices have to operate on many different frequencies, ranging from 3G and 4G spectrum to ultra-high frequencies known collectively as "millimeter wave," which offer 25 times the bandwidth of 4G but whose signal can be blocked by windows, walls or even a hand holding the phone.

Connecting to all those various wave-lengths requires 5G devices to pack in a different radio-frequency unit and set of antennas for every frequency in which it operates. And Qualcomm, one of the first companies to predict and prepare for the challenge of the new ultra-high frequencies, is especially well-positioned to provide the circuitry for the future of 5G devices, said Canaccord Genuity analyst Michael Walkley.

"Qualcomm has unique technologies that give it more content share per device for millimeter wave, so the more millimeter-wave there is, the better for Qualcomm," Walkley said. "5G is increasing and you're starting to see millimeter-wave beyond the United States. You'll start seeing it in fixed wireless and other things before long, too."

During the past year Qualcomm has also proven adept at producing the filters and other signal-optimization tools that make multifrequency 5G devices far easier to use, said Stacy Rasgon, managing director and senior analyst at Sanford C. Bernstein & Co. LLC.

Underscoring its expectations for the radio-frequency business, Qualcomm in its latest quarterly filing broke out the contributions of more specific categories in its chip business, under automotive, Internet of Things, mobile handsets and radio-frequency front-end chips. The radio chips generated just under $1 billion in revenue for the just-ended quarter, narrowly trailing Qualcomm's Internet-of-Things chips to end the period as the third-largest sales driver in the chip segment. Mobile handsets continued to account for the most sales in the chip segment, with $3 billion in the just-ended period. The chip segment as a whole drives about 77% of Qualcomm's total revenue.

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The bulk of Qualcomm's revenue will likely continue to follow the seasonal fluctuations of handset sales through at least the second half of 2021, said Qualcomm CFO Akash Palkhiwala during the company's Nov. 4 earnings call.

By 2022, however, Qualcomm projects that it will secure about 20% of an $18-billion radio-frequency chip market, surpassing the current size of its handset chip sales. Qualcomm reported $2.36 billion in radio-frequency chip sales during its just-ended fiscal 2020, compared to $1.48 billion during fiscal 2019.

At more than $3 billion in projected radio-frequency chip sales in 2022, that would make Qualcomm's radio business as big or bigger than that of competitors Broadcom Inc., Qorvo Inc. or Skyworks Solutions Inc., vaulting it into a major player in the market, said Bernstein's Rasgon.

Qualcomm's competitors are also watching how demand for devices using millimeter-wave frequency picks up as the 5G market develops. "We would be thrilled if it becomes mainstream, and we would love to participate in it," said Qorvo President of Mobile Products Steven Creviston during the company's Nov. 4 earnings call. "It's really a matter of waiting to see if the need really survives the first one or two generations."