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As per a Reuters report, Qualcomm Inc. (QCOM - Free Report) may outsource the production of its next generation high-end Snapdragon 830 chipset to Samsung Electronics Ltd. The processors will power nearly half of Samsung’s next flagship line, Galaxy S8. Qualcomm is also expected Samsung’s smaller 10 nm chipset design which is touted to deliver high performance as well as achieve high power efficiency at the same time. Considering Samsung’s brand value in the smartphone market and its unparalleled popularity, the news is a major positive for Qualcomm. Notably, Qualcomm’s rival chipset Exynos is also produced by Samsung. Interestingly, the rest of Samsung phones will be integrated with the upcoming Exynos 8895 processor.

Additionally, the report states that Qualcomm and Samsung will develop FoPLP (Fan-out Panel Level Package) technology for Snapdragon 830 and Exynos 8895 chipsets. This technology will allow chipmakers to avoid the use of printed circuit boards (PCB), thus reducing cost of production.

Challenges Ahead

For long, Qualcomm has operated as the undisputed leader in the mobile chipset space. However, in recent times, it has faced challenges from low-cost chip manufacturers like MediaTek and Rockchip as well as NVIDIA Corporation (NVDA - Free Report) and Intel Corporation (INTC - Free Report) . Also, other leading smartphone manufacturers like Sony Corp. (SNE - Free Report) and LG are reportedly investing heavily to manufacture chipsets. Also, critics believe that Qualcomm’s present Snapdragon 820 chipsets have been delivering a low performance when compared to the previous generation iPhone 6S, which was powered by Apple’s A9 chipset.

The Bottom Line

While Qualcomm is reeling under competitive threat, its revenues are expected to increase significantly in China owing to the signing of new patent license agreements with smartphone makers. The company is actively involved in the production of chipsets for the 5G standard as well as various Internet of Things (IoT) technologies which may propel growth in the future.

Qualcomm currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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