At Qualcomm Inc., the future is synonymous with five.
The San Diego company, whose research has consistently taken wireless technology forward, is banking its future on technology known in wireless business shorthand as 5G.
That stands for fifth generation. Engineers are just now working out the 5G wireless technology standard — the thing that will follow the speedy 4G standard that consumers use today. They promise 5G will sling data much faster than 4G, and contain several other improvements.
Qualcomm (Nasdaq: QCOM) is coming out of a rough year and has taken a lot of heat from tthe investment community. The company is laying off employees, cutting expenses, pursuing side opportunities such as data center chips and talking about making acquisitions to spur growth.
Future Oriented
5G is a technology that will not produce a good deal of revenue now, or even next year. In the long term, however, it promises to produce billions of dollars in revenue. Qualcomm’s stock price might not benefit from 5G until 2018 or 2019, when big wireless carriers roll out their consumer 5G networks, said Tom Sepenzis of Northland Securities.
Is Qualcomm strong enough to get there?
“Oh, yeah,” said Sepenzis. “Qualcomm is the Intel of the mobile world.”
In an extensive presentation before financial analysts in February, Qualcomm executives said they were investing capital “to expand our technology roadmap and lead in 5G.”
Qualcomm does not break out R&D expenses per project, a spokeswoman said — though the business does release total R&D expenses since its 1985 startup. That number is $39.6 billion.
Jim McGregor, principal of Tirias Research, thinks Qualcomm will have a lot to say about the 5G standard, once it is finally agreed upon.
“Qualcomm is the leader in modem and wireless technology,” McGregor said by email. “Qualcomm continues to contribute to future wireless technologies and the 3GPP standards body. So, what role will they play? Qualcomm will be instrumental in introducing new technologies for 5G and beyond, just as they have done in the past, and will likely be the first to implement the new technologies. The implementation is critical because being the first means that every wireless network in the world will be qualified using Qualcomm silicon.”
That is, all will use Qualcomm microchips.
Whatever its investment in 5G, it’s likely that Qualcomm will not see an immediate return.
5G “will not produce a significant amount of income compared to the LTE solutions shipping today,” McGregor said, “but it will put Qualcomm in the driver’s seat for 5G just as the company was in with 4G.”
If you want to see the value of that, McGregor continued, “just look at all the new handsets” announced at the recent Mobile World Congress in Barcelona that are shipping with Qualcomm chips. “They captured most of the new phone designs that were announced.”
Those phones included the new Samsung Galaxy S7 and the LG G5. Both contain Qualcomm’s top-of-the-line Snapdragon 820 processor.
5G’s Arrival Date
5G technology will reach the consumer probably around 2019 and 2020, said Northland’s Sepenzis, adding that it will arrive in the big cities first.
For the moment, the business community is in the middle of testing the technology.
In late February, network operator Verizon Communications Inc. reported an “aggressive” program of 5G field tests in partnership with Qualcomm, Ericsson, Intel, Nokia and Samsung. Verizon said it might introduce the technology to the consumer market as early as 2017.
One very early test market is Verizon’s headquarters town of Basking Ridge, N.J.
A CNET reporter was able to ride a specially equipped van during a mobile test at Verizon headquarters in February, and said that data speeds reached 3.77 gigabits per second — which is 377 times faster than the typical 4G LTE speed.
In a recent report, RootMetrics reported that Verizon’s fastest median download speed using 4G LTE technology was 38.3 megabits per second (or 0.04 gigabits per second). At that speed, it would take 2.1 minutes to download a 45-minute TV show. RootMetrics found Verizon’s fastest 4G LTE speed was in Port St. Lucie, Fla.
Verizon is testing 5G in five markets, CNET reported. In addition to Basking Ridge, it is working in Hillsboro, Oregon, near Portland; Euless, Texas, near Dallas/Fort Worth International Airport; and two other New Jersey communities, Bridgewater and Piscataway.
Fierce Wireless cited reports from both Verizon and Ericsson that speeds in the tests topped 10 gigabits per second.
To the end user, 5G technology will be attractive because it will be able to transfer data a whole lot faster than 4G.
For mission-critical services such as medical devices, 5G will offer “ultra-low latency” — that is, the lag time between information exchanges — as well as high availability and strong security, Qualcomm said.
5G will also play a part in the Internet of Things, the vision of the future where consumer products and industrial equipment send and receive data wirelessly. Products for the IoT market need to cost little and have extremely low power consumption, Qualcomm said.
For wireless network operators, 5G service will use different parts of the electromagnetic spectrum, including high-frequency centimeter and millimeter waves.
That will require more cell sites, said Sepenzis, the analyst, since such waves do not travel as far as others — just as FM radio waves don’t travel as far as AM waves.
One concern investors will have, Sepenzis said, is whether Qualcomm will be able to command as large a royalty rate for 5G technology as it does for 4G. Qualcomm’s customers pay royalties to Qualcomm when they license the San Diego company’s patents. Qualcomm has already experienced declining royalty rates. The current 4G technology does not pay as much as yesterday’s 3G technology, Sepenzis said.
