Sales of 5G wireless phones may be slow to take off. But the complexity of those phones is going to be a boon for some chip makers sooner than later.
Wireless carriers have already begun deploying the next-generation service known as 5G in the U.S. and other markets, such as China and Korea. But availability is still limited, and compatible phones are expensive. A Samsung executive said at an industry event last week that the world’s largest maker of wireless handsets expects to sell more than four million 5G devices by the end of this year. That may sound like a lot, but it is just a little over 1% of the roughly 300 million handsets that Samsung ships annually, according to IDC estimates.
Still, 5G presents a significant opportunity for chip makers including Broadcom (AVGO), Qorvo (QRVO) and Skyworks Solutions (SWKS), which supply RF, or radio-frequency, components for the handsets themselves.
Qualcomm (QCOM) historically strong in baseband modem processors, announced Monday the acquisition of the remaining interest in its TDK joint venture that also produces RF chips. These chips perform tasks such as amplifying and filtering wireless signals—important jobs for a technology whose standards are still evolving. In one example, Ed Snyderof Charter Equity Research showed in a detailed report last week how current 5G services are spread across three different types of signal bands, depending on the country. Handset makers that want their devices to work globally have to accommodate those variations and others.
That effectively means more RF chips per device. Mr. Snyder estimates the value of such chip content per device will increase about 10% over the next two years. The upside could continue beyond that, as 5G networks grow more robust. Skyworks Chief ExecutiveLiam Griffintold a Citi investment conference last week that he expects the RF opportunity per phone to rise “over time” from about $18 in current 4G handsets to around $25 for 5G devices—a 39% increase.
That spells upside for a group that has been beaten down by the current smartphone slump. Shares of Broadcom, Qorvo and Skyworks all have significantly lagged behind their semiconductor peers this year. As the 5G signal gets more clear, investors will want to dial back in.
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