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For years, Qualcomm has been riding high thanks to its leadership in making the chips that go inside smartphones.
But a resurgent iPhone, which only makes use of some of Qualcomm’s technology, and the loss of business at Samsung has left the company looking to cut back even as it hopes to stay at the forefront of the phone chip market. The company announced plans Wednesday to cut $1.4 billion in costs — slashing 15 percent of its workforce and sharply curtailing work outside of its core chip and technology licensing businesses.
The question now is how the company can deal with mounting competition even as it attempts to shrink itself. In an interview, company president Derek Aberle said he believes the company can make all those cuts without yielding further ground to its many rivals — particularly Taiwan’s MediaTek and Chinese firms like Rockchip.
“This has been a multi-month review, very carefully and thoughtfully done,” Aberle said. “We’re still going to be investing about $4 billion in [research and development] even after these cuts.”
He insisted the company knows where it can have an advantage over rivals and is continuing to pour money into those areas. It’s also not cutting back in investing in some of the markets where smartphone technology is headed — places like automobiles, health care and the Internet of Things.
The company, however, is pulling back some of the far-flung investments it has made over recent years, including Mirasol, an effort to create a screen that had the same low-power benefits of E-Ink screens like those found on the Kindle while still displaying color and motion like a traditional phone screen. The technology, though, proved tough to commercialize and Qualcomm had already been downplaying the effort following a less-than-robust response to the technology in a homegrown smartwatch known as Toq.
“We have been consistently scaling down the amount of investment in display over the last 18 months,” Aberle said. “That’s an area where we are definitely reducing.”
As for winning back Samsung, the company has put a big effort in this area. As first reported by Re/code in April, Qualcomm plans to manufacture its next-generation Snapdragon 820 at Samsung’s own chipmaking facilities. In addition, Qualcomm is returning to a homegrown processing core rather than using an off-the-shelf design licensed from ARM — a move it made more quickly to have a 64-bit chip option.
“We feel very good about the 820 and the progress we are making,” Aberle said. “We feel like we are getting a warm reception there. We continue to believe we will be in a competitive position with the 820 to compete for Samsung’s business.”
By Qualcomm’s own admission, Apple and Samsung control roughly 85 percent of the high-end smartphone business. And while Qualcomm’s modem chip is used in the iPhone, Apple uses its own custom processor to serve as the main chip. Qualcomm makes far more money per phone when companies use its integrated chip which includes a modem as well as graphics and overall processing capabilities.
That means that this year, Qualcomm has been largely left powering the also-rans in the flagship device category. And, Qualcomm noted on the call, not only haven’t those devices done that well, but inventory is also piling up among some makers.
Aberle concedes Apple’s gains have hurt the company, pointing to Apple’s comments about luring record numbers of former Android users to the iPhone.
“It’s definitely having an impact on the [Android] ecosystem,” he said. But those gains need not be permanent, he argued. “This is an incredibly dynamic industry and we’ve seen a lot of share shifts over time.”
This article originally appeared on Recode.net.
