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Qualcomm Inc. Gives an Update on Data Center Efforts

Qualcomm (NASDAQ: QCOM) is the leading vendor of smartphone applications processors. Its premium chips for those devices face little competition from other component suppliers, meaning that unless a smartphone maker is willing -- and able -- to build its own competitive high-end smartphone chips (a difficult undertaking), it's likely to use Qualcomm's.

The company has also been very aggressive in transferring key technologies from its premium smartphone chips -- such as high-end cellular capabilities -- into its mid-range and low-end smartphone chips, a strategy that has helped it to bolster its position in those segments of the market, too.

Image source: Qualcomm.

That said, while Qualcomm continues to do a good job of capitalizing on the smartphone market, the reality is that the highest-growth period of the smartphone revolution is now behind us. Recognizing this, Qualcomm is trying to bring its chip development expertise to new markets to accelerate growth.

One area that it's going after is the data center chip niche, which is currently dominated by Intel (NASDAQ: INTC). On Qualcomm's most recent earnings call, management provided a brief update on that effort.

Centriq 2400 on track for year-end launch

CEO Steve Mollenkopf said that the company remains "on track for commercial shipments of the Qualcomm Centriq 2400 processor family by the end of the calendar year."

The Centriq 2400, by way of background, is a 48-core chip designed specifically for data center applications, and is manufactured on an unspecified foundry 10-nanometer chip manufacturing technology. Mollenkopf also stated that the company has "already shipped more than 1,000 evaluation platforms to leading customers and partners."

"We continue to be encouraged by the engagement with and feedback from our growing list of customers and partners as to the performance of our product," he said.

Slow and steady gets in the race

If Qualcomm plans to start shipping Centriq 2400 by the end of the year, then investors should expect its true revenue contribution to start showing up over the course of 2018. But I don't expect these revenues to be significant in the next year; after all, this is the first generation of the product, and it will face an entrenched incumbent in the form of Intel.

What investors who are interested in Qualcomm's data center efforts should really watch is the rate of progress over time. If the company's new chip family can make solid, steady gains in market share, year in and year out, then its data center efforts could eventually contribute interesting levels of revenue and gross profit.

But, to be clear, don't expect such traction -- if it can be generated at all -- to be achieved overnight. Entering a new market that's dominated by a strong incumbent is ultimately a marathon, not a sprint.

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Ashraf Eassa owns shares of Intel and Qualcomm. The Motley Fool owns shares of Qualcomm. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.