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Live at CES: Qualcomm Gets Tired of Smartphones

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The digital communications company shifts its focus toward wearable technology and the Internet of Things.

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Here at Qualcomm's (NASDAQ:QCOM) CES conference, president Steve Mollenkopf has assured the crowd in Las Vegas that his company "isn't done with smartphones yet." That may be true, but it's clearly an open relationship; most of Qualcomm's recent announcements have had little to do with its core smfartphone business.

Qualcomm's big initiative last fall was the Toq smart watch – a piece of wearable tech that has generally underwhelmed reviewers. The company is making a play for the Internet of Things with a software initiative called Alljoyn, intended to facilitate communication between devices. For CES, Qualcomm has announced two niche Snapdragon processors: the 802, intended for smart televisions, and the 602A, aimed at automobiles.

Meanwhile, Qualcomm's smartphone business has suffered. Apple (NASDAQ:AAPL) surprised the industry last fall when it introduced the 64-bit A7 processor, which was initially dismissed by a Qualcomm executive as a "marketing gimmick." Today, Qualcomm's president argues that, "we are the first ones to drive mainstream 64 bit." That's a telling reversal, as well as a head-scratching interpretation of events, given that the 64-bit chip Snapdragon 410 won't hit markets until the second half of 2014 -- a full year behind Apple. The company is also behind Intel (NASDAQ:INTC), whose Atom processors are already 64-bit capable.

Also under attack is Qualcomm's edge in LTE, which "is going from being a premium product to being a mainstream feature. Nvidia (NASDAQ:NVDA) is set to release a processor with integrated LTE early this year, while Intel unveiled its own LTE modems last fall, and is expected to integrate them into systems-on-a-chip sometime in the next year. Meanwhile, Taiwan-based Mediatek (TPE:2454) is unveiling some LTE silicon of its own, this week at CES, so Qualcomm is about to lose a big bragging point.

Mr. Mollenkopf also addressed Qualcomm's recent setback in China, where it faces an antitrust probe. "I think we're a very friendly business model for China," he said. The country is now launching LTE networks, which present "an opportunity for Qualcomm and (its) Chinese domestic partners to use the positioning they have in China as a stronghold for exports," as more Chinese phones find their way into the United States.

That may be wishful thinking. It's telling that Qualcomm has come under scrutiny at precisely this moment, with China rolling out LTE and Taiwanese vendors finally offering an LTE solution. Mediatek is almost certainly going to receive preferential treatment from China's leaders now that it can offer a product more or less competitive with Qualcomm's.

On the bright side, Qualcomm's small-cell technology may have a bright future, as AT&T (NYSE:T), Verizon (NYSE:VZ), and others try to improve their connection speeds. This means building a tighter network of cell towers, or "densifying" the networks, as Qualcomm's president puts it. With more devices becoming connected, and as more of those connections are rolled into data plans, cellular providers are likely to see brisk traffic for years to come.

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