You might just have a Qualcomm chip in your computer or mobile device that you’re using to read this right now. This corporation is the leading maker of LTE chips and their products are found in almost all mobile device brands. Samsung and Apple are just two of the bigger names that uses Qualcomm components. Their revenues come from the manufacturing and sale of these chip and by leasing their technology out to other manufacturers.
In other words, the Qualcomm business model could easily be compared to that of a toll company. They are the only one in their industry right now performing at this level, which means they can set their own prices and make people choose if they want to pay to play. For the last 20 years, this business model has generated huge operating margins and incredible growth.
Because of China, however, the Qualcomm business model is now at risk.
It Is a Basic Contract and Sales Business Model
In China, Qualcomm has contracted licenses with manufacturers to put their chips into the 3G and 4G mobile devices that are being created. The only problem is that China’s version of the SEC, called the National Development and Reform Commission [NDRC], has launched an ongoing investigation into the Qualcomm business model. At question are the amount of fees that the company is charging for leasing and usage rights.
The investigation has led to some of the smaller contracted organizations to under-report or fail to report on the number of units that have been moved for Qualcomm. In turn, this has caused the company to adjust its sales numbers when reporting to Wall Street. The final domino in this negative cascade is that investors have driven the value of the stock much lower.
There’s another potential problem for Qualcomm in China as well: the NDRC might decide to start regulating the fees that they are able to charge on their contracts within the country. China is the fastest growing market for smart devices and Qualcomm is the primary chip manufacturer. Short-term revenues have already been affected. The long term potential that Qualcomm has in China could be at stake because of their business model.
Invention Is a Key Component of the Qualcomm Business Model
There’s a certain amount of sustainability that can be seen within the business model from Qualcomm, especially when it comes to their research and development. This organization believes that progress isn’t just about profitability. Qualcomm believes that because invention is at the heart of human progress, there must be a purpose behind what is being created. It could be argued that this philosophy helped to inspire a mobile revolution.
The keyword there is “inspire.” Qualcomm has invented some amazing things, but they have also inspired others to invent amazing things as well using their chips as a foundation. The ultimate goal is to help people be able to connect with each other in a way they prefer and that makes life better and easier for all involved.
In some ways, the Qualcomm business model is about as simple as it gets. They found a problem, solved it, and continue to sell it.
Can the Qualcomm Business Model Survive?
Despite the problems that Qualcomm is experiencing in China, the future looks quite bright for this organization. There are only a handful of companies that are anywhere near Qualcomm in their level of brand saturation. The Snapdragon processors are not only a quality product because they have incredibly fast speeds and graphics output, but they are durable and potentially last beyond the life cycle of the technology where they’re being used.
The Qualcomm business model is also focused on internal investment. Without quality people, there would be no quality products hitting the market. This allows them to provide solutions to the wireless industry that support subscribers. The subscribers then pay for their wireless devices and that brings in a steady stream of revenue for Qualcomm. In many ways, this business model could be considered an infinite revenue loop.
Through manufacturing and licensing, Qualcomm has become a force in the technology industry today that will give them security for decades to come. The next time you turn on a mobile device or computer, think about how much joy that technology has given you. That joy is due in part to the inventiveness that has come out of Qualcomm over the last two decades and that can’t be forgotten about when examining the business model of this agency.
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