The Real Winners of In-Car Entertainment

We are on the verge of in-car entertainment (ICE) going mainstream. Apple (AAPL) recently announced the release of CarPlay, its iOS vehicle integration at the Geneva International Motor Show, which allows an iPhone to take over the in-dash display of the car, providing Siri voice controlled access to aspects such as navigation, phone functions, messages and music. CarPlay will be first accessible from manufacturers such as Ferrari, Mercedes-Benz and Volvo, and is slated to release for other car manufacturers later this year.

Google (GOOG) has announced that it is forming partnership with Audi, GM (GM), Honda (HMC), Hyundai and chipmaker Nvidia (NVDA) called an Open Automotive Alliance. The alliance is aimed at developing ways of integrating the search engine giant’s Android operating system into cars to make driving “safer, easier and more enjoyable for everyone.”

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Where Will Qualcomm’s Growth Come From?

Qualcomm (QCOM) designs, develops, manufacturers and markets digital communication products. Qualcomm’s business segments include mobile device chipset manufacturing, mobile device royalties and strategic investments. Qualcomm is the leader in ARM-based chipset processors which can be found in the bulk of Android (GOOG), BlackBerry (BBRY) and Windows (MSFT) mobile devices. The licensing segment is used by almost all mobile device manufacturers including Apple (AAPL). Considering that 1 billion smartphones were shipped last year, the real winner from the smartphone wars really is Qualcomm. Qualcomm charges royalties on each handset sold based on its technology and one time licensing fees from handset vendors to use its proprietary technology.

Competition And Risks

  • On the technology front, Qualcomm competes with GSM mobile phone technology, which is wildly prevalent outside North America and is an open source technology.
  • As the world moves from 3G to 4G (LTE/WiMax), Qualcomm has lost some of the hefty royalty pricing power on OFDMA-based LTE technology as it commanded on CDMA technology.
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