- The Snapdragon Flight kit has powered a fully autonomous Hover Camera drone.
- Qualcomm's drone venture is a low-risk, high-reward opportunity.
- If the chipmaker plays its cards right, it could hit it big by becoming the default choice for drone manufacturers going forward.
Qualcomm, Inc. (NASDAQ:QCOM) may be upping the ante for drone makers. The chip-maker announced earlier this year that it would manufacture a custom version of its Snapdragon chips, specifically for drones, which would allow for reduced power draw, lowered cost of chips and high-level functionality such as artificial intelligence. Well, it hasn’t even been a full year since the announcement was made and the very first fully autonomous drone, utilizing its Snapdragon flight kit, has already hit the shelves. But this might just be the start; there is a reason to believe that Qualcomm is all set for global domination in the drone segment.
Let me start by saying that every drone requires a SoC which gives it the required computing capabilities to record in higher resolutions, respond quickly to user commands and sometimes even do landscaping tasks for architects and engineers. But if you add more processing power to the drones, they become capable enough to execute complex algorithms in real-time, such as fully autonomous flight. We saw this auto-flight functionality in the recently launched Hover Camera, equipped with Snapdragon Flight kit.
The Hover Camera doesn’t have a remote control and is completely capable of following its users around. This is truly an impressive feat. But what’s more impressive is that it’s powered by a mediocre Snapdragon 801 chip. I’d like to point to readers that the chip isn’t new by any means; it was actually released back in 2014 and was designed for flagship smartphones back then. So if an old, general-purpose, smartphone chip is capable enough to power a fully autonomous flight, whilst recording 4k videos, just imagine what kind of drone-related capabilities and processing power today’s latest Snapdragon 820 stands to offer.
We must understand that the battle of high-performance SoCs may have heated up in the mobile segment over the past few years, but it is yet to take off in the drone segment. Let me cite an example: Ambarella is known to power GoPro’s line of cameras and drones. The chipmaker’s latest SoC, H12, is supposed to be one of its fastest chips ever. But the key thing to note here is that it's based on Cortex-9 architecture, which is reportedly inferior and less efficient than Qualcomm’s 2-year old Snapdragon 801 chip.
Granted that clock speeds will have a material impact on H12’s performance, but the fact that Ambarella’s latest chip houses an architecture that’s inferior to Qualcomm’s 2-year old, general purpose smartphone chip, says a lot about how under-penetrated and less competitive the drone chip segment currently is.
Now consider this: Over the next few years, Ambarella will be spending cash to develop successors of its H2 chips. But Qualcomm won’t have to move a needle; it already has Snapdragon 810's and 820’s lined up to succeed its future iterations of Snapdragon Flight kits. This boosts Qualcomm’s competitiveness in the drone segment by a great deal. Some of its prospective advantages are:
- Qualcomm won’t have to design its drone chips from ground-up. This means it would be able to release its future iterations of Snapdragon Flight kits in a timely manner
- Qualcomm won’t have to ramp up its R&D spending for drone chips. The chipmaker can simply employ its 810 and 820 chips in the next two generations of Snapdragon Flight kits for them to compete with Ambarella’s H2 chips.
- As Snapdragon Flight kit volume ramps up, Qualcomm will start to attain better economies of scale. After all, these kits come equipped with slightly tweaked smartphone chips.
- There’s not going to be any uncertainty about Qualcomm’s future drone chips. The SoC designs are already in place, proven and in circulation (in mobiles and tablets).
The chipmaker is leveraging its IP to compete in an entirely new market segment. If it succeeds, a sizable revenue stream could open up. If Qualcomm fails to make a dent in the market, it doesn’t stand to lose much, since it’s basically deploying smartphone chips in drones and hasn't really developed anything new to compete in the segment. So it's basically a low-risk, high reward opportunity for Qualcomm and its shareholders.
The industry is set to explode
Next thing to note here is that Qualcomm will be operating in a rapidly expanding industry. There may have been a few legal hurdles, limiting the growth of drone adoption in the U.S. But in spite of the legal roadblocks in the country, PwC estimates that the global market for drone applications will swell in size from the current $2 billion to $127 billion by 2020.
With the introduction of fully autonomous flight, and the cost of drones falling rapidly each year, we may very well see the adoption of drones in various day-to-day operations. Some of these may include real-time 3D mapping of crops, product delivery in rocky terrains or infrastructure scaling from inside-out.
That’s basically a 62.5x growth in market size over a span of just 4 years. Even if Qualcomm isn’t able to command a leading position in the market, and manages to capture only a 10% slice of the segment, its prospects of growth would still be huge considering the explosive projected growth of the drone industry. The chipmaker appears to have enough room to grow in the segment.
Putting it all together
Qualcomm already has the IP, mobile expertise, think tank and SoC in place to fiercely compete in the drone segment. If the chipmaker plays its cards right and introduces the 820 in Snapdragon Flight kits next year, it might well become the default choice for most drone manufacturers. This way, Qualcomm would not only give stiff competition to Nvidia and Ambarella but also capitalize on the low-risk, high-reward opportunity. Hence, due to the aforementioned reasons, I’m bullish on Qualcomm’s drone prospects.