QUALCOMM, Inc. (QCOM): Where Does Mediatek Stand With LTE?

Some have suggested that Qualcomm Inc.'s (NASDAQ:QCOM) prime competitor Mediatek's LTE modem MT6290 will ship in volume in the fourth quarter of this year.

Qualcomm had 97 percent share of the LTE baseband market in the first quarter and a 59 percent share of the baseband market overall, according to Strategy Analytics. The other players in the market include Intel (12 percent) and MediaTek (10 percent).

Mediatek has grown quickly into a formidable competitor in low-end 3G, and they would be competitive here for some time. While growing their share in 3G, they have also been a successful ARM licensee for the apps processor, evidenced by recent discussions that their quadcore MT8135 chipset could be included in the upcoming, low-end Kindle.

However, Mediatek, is yet to ship their first generation multi-mode products, while Qualcomm is getting ready to ship its 4th generation of LTE multi-mode ASIC. In the case of Mediatek, it would be tough for the company to ship its LTE chipsets in volume by the end of the year.

"Our checks indicate that this timeframe would be a challenge for anything beyond sample units for network testing and phone development," Deutsche Bank analyst Brian Modoff wrote in a note to clients.

In short, there remains significant work ahead for Mediatek, particularly for a multi-mode LTE chipset. Specifically, their LTE chipset still does not have a functioning LTE radio and substantial work remains to achieve this goal.

Overall, there are material hurdles until their LTE chipset is ready for verification on China Mobile's network, or any other TDD or FDD-LTE networks for that matter.

"We contend that there should only be limited LTE chipset volumes from Mediatek in 2014, and even these should come towards the end of the year," Modoff said.

As a result, there are several challenges at Mediatek, and significant work remains in LTE.

On the positive note, Mediatek continues to perform well in low-end 3G and Mediatek is still Qualcomm'! s best competitor, as evidenced by their significant growth in 3G volumes and overall results. The company has done well developing 3G system on chip (SOC) solutions for mass-market, low-end phones in the China market.

To compete, Qualcomm has spent a significant amount of R&D dollars, and as a result, its CDMA technologies' margins have taken a hit. Moreover, Qualcomm's lack of clarity around unit volumes in the China market does not help in terms of how investors think about their future prospects there.

"Our hope is that management provides some granularity around this market, as well as the puts-and-takes around QCT operating margins, at their upcoming analyst day next month," Modoff said.

Qualcomm continues to press ahead and continues to do the heavy lifting necessary to stay ahead of the competition. The company is shipping chipsets with LTE-Advanced capabilities that are being used on SK Telecom and NTT Docomo's networks.

Qualcomm's technologies are also used as small cell architectures, which are further integrated into carrier networks. The company's efforts likely could be leveraged, helping them further distance them from the competition.