Mad Hedge Technology Letter
July 3, 2019
(CHIPS ARE BACK FROM THE DEAD)
(XLNX), (HUAWEI), (AAPL), (AMD), (TXN), (QCOM), (ADI), (NVDA), (INTC)
Mad Hedge Technology Letter
July 3, 2019
(CHIPS ARE BACK FROM THE DEAD)
(XLNX), (HUAWEI), (AAPL), (AMD), (TXN), (QCOM), (ADI), (NVDA), (INTC)
The overwhelming victors of the G20 were the semiconductor companies who have been lumped into the middle of the U.S. and China trade war.
Nothing substantial was agreed at the Osaka event except a small wrinkle allowing American companies to sell certain chips to Huawei on a limited basis for the time being.
As expected, these few words set off an avalanche of risk on sentiment in the broader market along with allowing chip companies to get rid of built-up inventory as the red sea parted.
Tech companies that apply chip stocks to products involved with value added China sales were also rewarded handsomely.
Apple (AAPL) rose almost 4% on this news and many investors believe the market cannot sustain this rally unless Apple isn’t taken along for the ride.
Stepping back and looking at the bigger picture is needed to digest this one-off event.
On one hand, Huawei sales comprise a massive portion of sales, even up to 50% in Nvidia’s case, but on the other hand, it is the heart and soul of China Inc. hellbent on developing One Belt One Road (OBOR) which is its political and economic vehicle to dominate foreign technology using Huawei, infrastructure markets, and foreign sales of its manufactured products.
Ironically enough, Huawei was created because of exactly that – national security.
China anointed it part of the national security apparatus critical to the health and economy of the Chinese communist party and showered it with generous loans starting from the 1980s.
China still needs about 10 years to figure out how to make better chips than the Americans and if this happens, American chip sales will dry up like a puddle in the Saharan desert.
Considering the background of this complicated issue, American chip companies risk being nationalized because they are following the Chinese communist route of applying the national security tag on this vital sector.
Huawei is effectively dumping products on other markets because private companies cannot compete on any price points against entire states.
This was how Huawei scored their first major tech infrastructure contract in Sweden in 2009 even though Sweden has Ericsson in their backyard.
We were all naïve then, to say the least.
Huawei can afford to take the long view with an Amazon-like market share grab strategy because of possessing the largest population in the world, the biggest market, and backed by the state.
Even more tactically critical is this new development crushes the effectiveness of passive investing.
Before the trade war commenced, the low-hanging fruit were the FANGs.
Buying Google, Amazon, Apple, Netflix, and Facebook were great trades until they weren’t.
Things are different now.
Riding on the coattails of an economic recovery from the 2008 housing crisis, this group of companies could do no wrong with our own economy flooded with cheap money from the Fed.
Well, not anymore.
We are entering into a phase where active investors have tremendous opportunities to exploit market inefficiencies.
Get this correct and the world is your oyster.
Get this wrong, like celebrity investors such as John Paulson, who called the 2008 housing crisis, then your hedge fund will convert to a family office and squeeze out the extra profit through safe fixed income bets.
This is another way to say being put out to pasture in the financial world.
My point being, big cap tech isn’t going up in a straight line anymore.
Investors will need to be more tactically cautious shifting between names that are bullish in the period of time they can be bullish while escaping dreadful selloffs that are pertinent in this stage of the late cycle.
In short, as the trade winds blow each way, strategies must pivot on a dime.
Geopolitical events prompted market participants to buy semis on the dips until something materially changes.
This is the trade today but might be gone with one Tweet.
If you want to reduce your beta, then buy the semiconductor chip iShares PHLX Semiconductor ETF (SOXX).
I will double down in saying that no American chip company will ever commit one more incremental cent of capital in mainland China.
That ship has sailed, and the transition will whipsaw markets because of the uncertainty in earnings.
The rerouting of capital expenditure to lesser-known Asian countries will deliver control of business models back to the corporation’s management and that is how free market capitalism likes it.
Furthermore, the lifting of the ban does not include all components, and this could be a maneuver to deliver more face-saving window-dressing for Chairman Xi.
In reality, there is still an effective ban because technically all chip components could be regarded as connected to the national security interests of the U.S.
Bullish traders are chomping at the bit to see how these narrow exemptions on non-sensitive technologies will lead to a greater rapprochement that could include the removal of all new tariffs imposed since last summer.
The risk that more tariffs are levied is also high as well.
I put the odds of removing tariffs at 30% and I wouldn’t be surprised if the administration doubles down on China to claim a foreign policy victory leading up to the 2020 election which could be the catalyst to more tariffs.
It’s difficult to decode if U.S. President Trump’s statements carry any real weight in real time.
The bottom line is the American government now controls the mechanism to when, how, and the volume of chip sales to Huawei and that is a dangerous game for investors to play if you plan on owning chip stocks that sell to Huawei.
Artificial intelligence or 5G applications chips are the most waterlogged and aren’t and will never be on the table for export.
This means that a variety of companies pulled into the dragnet zone are Intel (INTC), Nvidia (NVDA), and Analog Devices (ADI) as companies that will be deemed vital to national security.
These companies all performed admirably in the market following the news, but that could be short lived.
Other major logjams include Broadcom’s future revenue which is in jeopardy because of a heavy reliance on Huawei as a dominant customer for its networking and storage products.
Rounding out the chip sector, other names with short-term bullish price action are Qualcomm (QCOM) up 2.3%, Texas Instruments (TXN) up 2.6%, and Advanced Micro Devices (AMD) up 3.9%.
(AMD) is a stock I told attendees at the Mad Hedge Lake Tahoe conference to buy at $18 and is now above $31.
Xilinix (XLNX) is another integral 5G company in the mix that has their fortunes tied to this Huawei mess.
Investors must take advantage of this short-term détente with a risk on, buy the dip trade in the semi space and be ready to rip the cord on the first scent of blood.
That is the market we have right now.
If you can’t handle this environment when there is blood in the streets, then stay on the sidelines until there is another market sweet spot.
Mad Hedge Technology Letter
May 16, 2019
(WHY YOU SHOULD AVOID INTEL)
(INTC), (QCOM), (ORCL), (WDC)
In the most recent investor day, current CEO of Intel (INTC) Bob Swan dived into the asphalt of failure below confessing that the company would have to guide down $2.5 billion next quarter, 25 cents, and operating margins would shrink by 2 points.
This is exactly the playbook of what you shouldn’t be doing as a company, but I would argue that Intel is a byproduct of larger macro forces combined with poor execution performance.
Nonetheless, failure is failure even if macro forces put a choke hold on a profit model.
Swan admitted to investors his failure saying “we let you down. We let ourselves down.”
This type of defeatist attitude is the last thing you want to hear from the head honcho who should be brimming with confidence no matter if it rains, shines, or if a once in a lifetime monsoon is about to uproot your existence.
In Swan’s spiffy presentation at Intel’s investors day, the second bullet point on his 2nd slide called for Intel to “lead the AI, 5G, and Autonomous Revolution.”
But when the company just announces that its 5G smartphone products are a no go, investors might have asked him what he actually meant by using this sentence in his presentation.
The vicious cycle of underperformance leads back to Intel seriously losing the battle of hiring top talent, and purging important divisions is indicative of the inability to compete with the likes of Qualcomm (QCOM).
Assuaging smartphone chip revenue isn’t the only slice of revenue cut from the chip industry, but to take a samurai sword and gut the insides of this division as a result of being uncompetitive means losing out on one of the major money makers in the chip industry.
Then if you predicted that the PC chip revenue would save their bacon, you are duly wrong, with global PC sales falling 4.6% in the first quarter, after a similar decline in the fourth quarter of 2018, according to analyst Gartner Inc.
The broad-based weakness means that revenue from Intel’s main PC processor business will decline or be unchanged during the next three years, which leads me to question leadership in why they did not bet the ranch on smartphone chips when the trend of mobile replacing desktop is an entrenched trend that a 2-year old could have identified.
The cocktail of underperformance stems from slipping demand which in turn destroys profitability mixed with intensifying competition and the ineptitude of its execution in manufacturing.
In fact, the guide down at investor day was the second time the company guided down in a month, forcing investors to scratch their heads thinking if the company is fast-tracked to a one-way path to obsoletion.
If Intel is reliant on its data centers and PC chip business to drag them through hard times, they might as well pack up and go home.
Missing the smartphone chip business is painful, but if Intel dare misses the boat for the IoT revolution that promises to install sensors and chips in and around every consumer product, then that would be checkmate.
Adding benzine to the flames, Intel’s enterprise and government revenue saw the steepest slide falling 21% while the communications service provider segment declined 4%.
The super growth asset is the cloud and with Intel’s cloud segment only expanding 5%, Intel has managed to turn a high growth area into an anemic, stale business.
Then if you stepped back a few meters and understood that going forward Intel will have to operate in the face of a hotter than hot trade war between China and America, then investors have scarce meaningful catalysts to hang their hat on.
Swan said the company saw “greater than expected weakness in China during the fourth quarter” boding ill for the future considering Intel derives 24% of total revenue from China.
Investors are fearing that Intel could turn into additional collateral damage to the trade war that has no end in sight, and chips are at the vanguard of contested products that China and America are squabbling over.
Oracle (ORCL), without notice, shuttered their China research and development center laying off 900 Chinese workers in one fell swoop, and Intel could also be forced to cut off limbs to save the body as well.
The narrative coming out of both countries will not offer investors peace of mind, and a primary reason why the Mad Hedge Technology Letter has avoided the chip space in 2019.
It’s hard to trade around the most volatile area in tech whose global revenue is becoming less and less certain because of two governments that have deep-rooted structural problems with each other’s trade policies.
Today’s tech letter is another rallying cry for buying software companies with zero exposure to China in order to shelter capital from the draconian stances of two tech sectors that are at odds with each other.
Let me remind you that Intel and Western Digital (WDC) were on my list of five tech stocks to avoid this year, and those calls that I made 6 months before are looking great in hindsight.
Global Market Comments
May 15, 2019
(SPECIAL CHINA ISSUE)
(WHY CHINA IS DRIVING UP THE VALUE OF YOUR TECH STOCKS)
(QCOM), (AVGO), (AMD), (MSFT), (GOOGL), (AAPL), (INTC), (LSCC)
Reduce the supply on any commodity and the price goes up. Such is dictated by the immutable laws of supply and demand.
This logic applies to technology stocks as well as any other asset. And the demand for American tech stocks has gone global.
Who is pursuing American technology more than any other? That would be China.
Ray Dalio, founder and chairman of hedge fund Bridgewater Associates, described the first punch thrown in an escalating trade war as a “tragedy,” although an avoidable one.
Emotions aside, the REAL dispute is not over steel, aluminum, which have a minimal effect of the US economy, but rather about technology, technology, and more technology.
China and the U.S. are the two players in the quest for global tech power and the winner will forge the future of technology to become chieftain of global trade.
Technology also is the means by which China oversees its population and curbs negative human elements such as crime, which increasingly is carried out through online hackers.
China is far more anxious about domestic protest than overseas bickering which is reflected in a 20% higher internal security budget than its entire national security budget.
You guessed it: The cost is predominantly and almost entirely in the form of technology, including CCTVs, security algorithms, tracking devices, voice rendering software, monitoring of social media accounts, facial recognition, and cloud operation and maintenance for its database of 1.3 billion profiles that must be continuously updated.
If all this sounds like George Orwell’s “1984”, you’d be right. The securitization of China will improve with enhanced technology.
Last year, China’s communist party issued AI 2.0. This elaborate blueprint placed technology at the top of the list as strategic to national security. China’s grand ambition, as per China’s ruling State Council, is to cement itself as “the world’s primary AI innovation center” by 2030.
It will gain the first-mover advantage to position its academia, military and civilian areas of life. Centrally planned governments have a knack for pushing through legislation, culminating with Beijing betting the ranch on AI 2.0.
China possesses legions of engineers, however many of them lack common sense.
Silicon Valley has the talent, but a severe shortage of coders and engineers has left even fewer scraps on which China’s big tech can shower money.
Attempting to lure Silicon Valley’s best and brightest also is a moot point considering the distaste of operating within China’s great firewall.
In 2013, former vice president and product spokesperson of Google’s Android division, Hugo Barra, was poached by Xiaomi, China’s most influential mobile phone company.
This audacious move was lauded and showed China’s supreme ability to attract Silicon Valley’s top guns. After 3 years of toiling on the mainland, Barra admitted that living and working in Beijing had “taken a huge toll on my life and started affecting my health.” The experiment promptly halted, and no other Silicon Valley name has tested Chinese waters since.
Back to the drawing board for the Middle Kingdom…
China then turned to lustful shopping sprees of anything tech in any developed country.
Midea Group of China bought Kuka AG, the crown jewel of German robotics, for $3.9 billion in 2016. Midea then cut German staff, extracted the expertise, replaced management with Chinese nationals, then transferred R&D centers and production to China.
The strategy proved effective until Fujian Grand Chip was blocked from buying Aixtron Semiconductors of Germany on the recommendation of CFIUS (Committee on Foreign Investment in the United States).
In 2017, America’s Committee on Foreign Investment and Security (CFIUS), which reviews foreign takeovers of US tech companies, was busy refusing the sale of Lattice Semiconductor, headquartered in Portland, Ore., and since has been a staunch blockade of foreign takeovers.
CFIUS again in 2018 put in its two cents in with Broadcom’s (AVGO) attempted hostile takeover of Qualcomm (QCOM) and questioned its threat to national security.
All these shenanigans confirm America’s new policy of nurturing domestic tech innovation and its valuable leadership status.
Broadcom, a Singapore-based company led by ethnic Chinese Malaysian Hock Tan, plans to move the company to Delaware, once approved by shareholders, as a way to skirt around the regulatory issues.
Microsoft (MSFT) and Alphabet (GOOGL) are firmly against this merger as it will bring Broadcom intimately into Apple’s (APPL) orbit. Broadcom supplies crucial chips for Apple’s iPads and iPhones.
Qualcomm will equip Microsoft’s brand-new Windows 10 laptops with Snapdragon 835 chips. AMD (AMD) and Intel (INTC) lost out on this deal, and Qualcomm and Microsoft could transform into a powerful pair.
ARM, part of the Softbank Vision Fund, is providing the architecture on which Qualcomm’s chips will be based. Naturally, Microsoft and Google view an independent operating Qualcomm as healthier for their businesses.
The demand for Qualcomm products does not stop there. Qualcomm is famous for spending heavily on R&D — higher than industry peers by a substantial margin. The R&D effort reappears in Qualcomm products, and Qualcomm charges a premium for its patent royalties in 3G and 4G devices.
The steep pricing has been a point of friction leading to numerous lawsuits such as the $975 million charged in 2015 by China’s National Development and Reform Commission (NDRC) which found that Qualcomm violated anti-trust laws.
Hock Tan has an infamous reputation as a strongman who strips company overhead to the bare bones and runs an ultra-lean ship benefitting shareholders in the short term.
CFIUS regulators have concerns with this typical private equity strategy that would strip capabilities in developing 5G technology from Qualcomm long term. 5G is the technology that will tie AI and chip companies together in the next leg up in tech growth.
Robotic and autonomous vehicle growth is dependent on this next generation of technology. Hollowing out CAPEX and crushing the R&D budget is seriously damaging to Qualcomm’s vision and hampers America’s crusade to be the undisputed torchbearer in revolutionary technology.
CFIUS’s review of Broadcom and Qualcomm is a warning shot to China. Since Lattice Semiconductor (LSCC) and Moneygram (MGI) were out of the hands of foreign buyers, China now must find a new way to acquire the expertise to compete with America.
Only China has the cash hoard to take a stand against American competition. Europe has been overrun by American FANGs and is solidified by the first mover advantage.
Shielding Qualcomm from competition empowers the chip industry and enriches Qualcomm’s profile. Chips are crucial to the hyper-accelerating growth needed to stay at the top of the food chain.
Implicitly sheltering Qualcomm as too important to the system is an ink-drenched stamp of approval from the American government. Chip companies now have obtained insulation along with the mighty FANGs. This comes on the heels of Goldman Sachs (GS) reporting a lack of industry supply for DRAM chips, causing exorbitant pricing and pushing up semiconductor companies’ shares.
All the defensive posturing has forced the White House to reveal its cards to Beijing. The unmitigated support displayed by CFIUS is extremely bullish for semiconductor companies and has been entrenched under the stock price.
It is likely the hostile takeover will flounder, and Hock Tan will attempt another round of showmanship after Broadcom relocates to Delaware as an official American company paying American corporate tax. After all, Tan did graduate from MIT and is an American citizen.
The chip companies are going through another intense round of consolidation as AMD (AMD) was the subject of another takeover rumor which lifted the stock. AMD is the only major competitor with NVIDIA (NVDA) in the GPU segment.
The cash repatriation has created liquid buyers with a limited amount of quality chip companies. Qualcomm is a firm buy, and investors can thank Broadcom for showing the world the supreme value of Qualcomm and how integral this chip stalwart is to America’s economic system.
Mad Hedge Technology Letter
May 14, 2019
(AAPL), (MSFT), (ADBE), (PYPL), (QCOM), (MU), (JD), (BABA), (BIDU)
Ratcheting up the trade tensions, China is pulling the trigger on retaliatory tariffs on $60 billion worth of U.S. goods, just days after the American administration said it would levy higher tariffs on $200 billion in Chinese goods.
American President Donald Trump accused China of reneging on a “great deal.”
The mushrooming friction between the two superpowers gives even more credence to my premise that hardware stocks should be avoided like the plague.
I have stood out on my perch in 2019 and proclaimed to buy software stocks and if you need one name to hide out in then I would confidently choose Microsoft (MSFT).
Microsoft has little exposure to China and will be rewarded the most on a relative basis.
The last place you want to get caught out is buying hardware stocks exposed to China and Apple is quickly turning into the largest piece of collateral damage along with airplane manufacturer Boeing.
Remember that 20% of Apple’s revenue comes from China and Apple bet big to solidify a complex supply chain through Foxconn Technology Group in China.
When history is recorded, CEO of Apple Tim Cook not hedging his bets exposing Apple’s revenue machine could go down as one of the worst ever managerial decisions by tech management.
The forced intellectual property transfers in China from western corporations was the worst kept secret in corporate America.
Being an operational guru as he is, and the hordes of data that Apple have access to, this was a no brainer and Cook should have mitigated his risks by investing in a supply chain that was partially outside of China, and not incrementally spreading out the supply chain through other parts of Asia is coming back to bite him.
China’s most recent tariffs will come into effect on June 1, adding up to 25% to the cost of U.S. goods that are covered by the new policy from China’s State Council Customs Tariff Commission.
The result of these newly minted tariffs is that importers will probably elect to avoid absorbing the costs themselves and pass the price hikes to the consumer sapping demand.
The American consumer still retains its place as the holy grail of the American economic bull case, but this will test the thesis.
For the short term, it would be foolish to hang out to Chinese companies listed in New York through American depository receipts (ADR) such as JD.com (JD), Alibaba (BABA).
Baidu (BIDU) is a company that I am flat out bearish on because of a weakening strategic position versus Alibaba and Tencent in China.
Even with no trade war, I would tell investors to short Baidu, and the chart is nothing short of disgusting.
Wei Jianguo, a former vice-minister at the Chinese Ministry of Commerce who handled foreign trade, said to the South China Morning Post that “China will not only act as a kung fu master in response to U.S. tricks but also as an experienced boxer and can deliver a deadly punch at the end.”
It is clear that any goodwill between the two heavyweight powers has evaporated and the hardliners inside the communist party pulled all the levers possible to back out at the last second.
Many of us do not understand, but there is a complicated political game perpetuating inside the Chinese communist party pitting reformists against staunch traditionalists.
This is not only Chairman Xi’s decision and appearing weak on the global stage is the last concession the communist government will subscribe to.
Along with the iPhone company, semiconductor stocks will be ones to avoid.
The list starts out with the chip companies leveraged the most to Chinese revenue as a proportion of total sales including Qualcomm (QCOM) with 65% of revenue in China, Micron (MU) who has 57% of sales in China, Qorvo who has half of sales from China, Broadcom who has 48% of sales from China, and Texas Instruments rounding out the list with 43% of total revenue from China.
The first 5 months of the year saw constant chatter that the two sides would kiss and makeup and chip stocks benefitted from that tsunami of positive momentum.
The picture isn’t as pretty when you flip the script, and chip stocks could suffer a gut-wrenching summer if the two sides drift further apart.
After Microsoft, other software names I would take comfort in with the added bonus of strong balance sheets are Veeva Systems (VEEV), PayPal (PYPL), and Adobe (ADBE).
The new tariffs will burden American households to up to $2 billion per month going forward, and new purchases for discretionary items like extra electronics will be put on the back burner extending the refresh cycle and saddling chip companies and Apple with a glut of iPhone and chip inventory.
Buy software companies on the dip.
Mad Hedge Technology Letter
April 24, 2019
(WHO BEAT WHOM IN THE APPLE/QUALCOMM BATTLE)
(QCOM), (INTC), (AAPL)
The 5G bonanza is slithering towards us in a slow yet predictable motion – that was the takeaway from Apple finally conceding that its bargaining positioning was weaker than initially thought.
Apple made amends with chipmaker Qualcomm (QCOM) in the nick of time, let me explain.
Qualcomm is the leader of 5G chip technology, and the two firms decided on a six-year pact that will allow Qualcomm to sell patent licensing to Apple while becoming a crucial supplier of 5G modems to the new iPhone that will roll-out to consumers in the back half of 2020.
Envisioning this 2 for 1 special a few weeks ago was impossible as the brouhaha spilled over into the national media with top executives exchanging barbs.
Qualcomm, to its credit, stayed steadfast on its position and was the bigger winner of the spat.
The rapid reaction in the stock price has vindicated Qualcomm’s initial reluctance to make a cut-price deal with Apple.
The new contract locks in Apple at around $9 per phone in licensing fees, almost double what many analysts were predicting.
Apple also paid a one-time fee of the backlog of patent usage from the past two years that many specialists estimate to be in the $6 billion range.
Qualcomm has previously stated that Apple owes them $7 billion from the kerfuffle and Apple’s refusal to pay stemmed from their belief that Qualcomm was “double dipping” – a claim based on Qualcomm charging a fee for each iPhone using its patents as well as a fee for the technology itself which Apple felt extortionate.
Ultimately, the jousting wasn’t worth the trouble as the best-case scenario of Apple saving $1 billion in patent fees was overshadowed by the opportunity cost which was significantly higher.
The updated terms see a substantial improvement for Qualcomm over the $7.50 per phone that Apple was paying before.
The end of the saga smells of desperation on CEO of Apple Tim Cook’s behalf, realizing that time was ticking down and competitors such as Huawei have already launched 5G-supported phones.
Apple is, in fact, late to the party and one of the main root causes was the logjam with Qualcomm.
If Apple didn’t come to terms with Qualcomm, suppliers and designers wouldn’t have enough time or supply to prepare to meet the fall 2020 deadline causing Apple to delay the new iPhone.
The worst-case scenario that became a realistic threat was that the new iPhone wouldn’t have been ready until 2021 – Apple shares would have dropped 20% in a heartbeat if this played out.
Avoiding this doomsday scenario is a massive bullish signal for Apple shares and brings forward revenue demand into 2020.
The new iPhone with ironically Qualcomm’s 5G modem technology is also the selling point for iPhone lovers to upgrade to a newer and faster iPhone iteration.
It’s a headscratcher that Tim Cook played his cards in the way that he did, another misstep in a long record of fumbles in the red zone.
Inevitably, scrunching up the production schedule heaps loads of pressure on the existing engineering teams to produce a flawless iPhone.
Apple simply couldn’t wait any longer and CEO of Qualcomm Steven Mollenkopf understood that, leading me to solely blame Tim Cook for this calculated error.
Where do the chips lie after this recent shakeout?
First, this piece of news is demonstrably bullish for Qualcomm and its business model while backloading around $6 billion or so in revenue onto its balance sheet.
In short, Qualcomm hit it out of the park and set itself up for the upcoming insatiable demand for 5G chips while publicly demonstrating they are best in show for 5G infrastructure equipment.
It might turn out to be Qualcomm’s best day in the history of the company and one that employees will never forget inside its headquarters.
This will embolden Qualcomm in the future to fight for the revenue that is rightfully theirs and they won’t be frightened by bigger sharks attempting to persuade them that they should receive a lesser share of the pie.
For Mollenkopf, this is his crowning moment and a pathway to another big-time job, the one day grabbing of the spoils has elevated his reputation.
Apple is a minor winner because of the adequate supply of chips that Qualcomm will provide that guarantees Apple’s engineers clarity instead of dragging itself deeper into a courtroom battle with a company that supplies an integral component to their iPhone.
Hours after the news hit the press, Intel (INTC) waived the white flag issuing a short response admitting they are exiting the 5G smartphone business, a bitter pill to swallow for a legacy company finding it difficult to stay with the big boys.
And if you remember, Intel was initially thought to be the one to provide memory to the 5G smartphone but now that notion is dead as a doornail.
Intel will hope they can capture a fair share of the 5G PC business to make up for the lost opportunity, but as consumers migrate away from PCs, shareholders could sense Intel could be left holding the bag.
Qualcomm has strengthened its stranglehold on the 5G smartphone modem market in an industry that will morph into a worldwide addressable market of $20 billion by 2025.
Even though Huawei just announced they would be willing to sell their 5G chips to Apple, Huawei and South Korea’s Samsung mainly produce chips for their in-house branded smartphones and shun feeding competitors like Apple who require the same chips.
Apple hoped to create some leveraging power to get a better 5G chip deal and loosen the jaws that gave Qualcomm a powerful position over Apple, but Intel quitting this segment left Apple with a series of bad choices and they chose the lesser of the evils.
What does this boil down to?
Qualcomm outmuscled Intel producing faster and better performing chips that supported longer battery life.
Qualcomm simply has better engineering talent.
Intel had an uphill battle in the first place, but it is clear they cut their losses because the writing was on the wall leaving Qualcomm to reap all the benefits.