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Qualcomm Wins EU Connected Car Battle, 5G Standard on the Way

Zacks Equity Research

Leading chip maker Qualcomm Incorporated QCOM, together with Deutsche Telekom AG DTEGY and BMW recently won an enduring legal battle over the use of 5G technology in vehicles across Europe, per Bloomberg. The triumph came after European Union member states repudiated prevailing rules that proposed WiFi-based technology for future connected cars.

Qualcomm is one of the largest manufacturers of wireless chipset built on baseband technology. The company has been working hard to retain its leadership in 5G, chipset market and mobile connectivity with several technological feats and state-of-the-art product launches.

In November 2018, firms like Qualcomm, BMW, Ericsson, Huawei, Intel, Samsung and Deutsche Telekom, who support Cellular Vehicle-to-Everything (C-V2X), pointed out that the European Commission had failed to follow the technological neutrality principle that was adopted two years ago.

In fact, the joint statement was made public after the European Union executive preferred WiFi-based technology, which was pursued by another group. This group included NXP, General Motors, Volvo, Renault, Toyota and Volkswagen, which backed WiFi 802.11p.

Qualcomm and its business allies said that it was vital for the automotive industry to have the freedom to adopt a range of technologies for Internet-connected cars in a sector, which is estimated to be worth billions of euros a year. The comment followed a similar push by trade associations through a letter to all 28 European Union member states.

Further, the companies mentioned the advantages of C-V2X, citing the fact that this technology was gradually gaining ground in China and the United States. With this technology, self-driving vehicles will be unlocked by 5G. Virtual reality and augmented reality, smart factories, and artificial intelligence are on the cusp of major breakthroughs.

The companies urged European Union legislators to revoke WiFi standards as it would force them to make additional investments for a technology which will soon be out-of-date. They also stated that WiFi offers relatively poor performance than cellular-based technology run with impending 5G networks.

The Commission was looking for legislation to accelerate the rollout of connected cars and boost collaboration among manufacturers for safer and more efficient cars on road. Its latest verdict is seen to be a victory for 5G technology as several countries are preparing for the initial rollout of ultra-fast 5G wireless networks.

The legislation is aimed at overseeing connected and automated car operations in Europe for sending information between vehicles and infrastructure to communicate about unsafe conditions, road works, and traffic lights. However, the decision by representatives of the European Union’s member states awaits formal approval by its ministers.

Amid all these, the winners are likely to be the vendors of 5G modems such as Qualcomm, if things are done in an intelligent and well-planned way. Driven by diligent execution of key business strategies, shares of Qualcomm have rallied 34.6% compared with the industry’s rise of 11.6% in the year-to-date period.

Currently, Qualcomm has a Zacks Rank #4 (Sell). A couple of better-ranked stocks in the industry include Comtech Telecommunications Corp. CMTL and Ubiquiti Networks, Inc. UBNT, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Comtech has long-term earnings growth expectation of 5%.

Ubiquiti has long-term earnings growth expectation of 19.8%.

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