SpaceX's Qualcomm deal could be a precursor to a telecom takeover

By William Gavin

The deal adds to what a BNP Paribas analyst called an 'unprecedented' amount of news putting pressure on U.S. telecommunications operators

Qualcomm is set to report fiscal fourth-quarter earnings on Wednesday.

A big deal with Qualcomm is the latest shot fired in SpaceX's burgeoning war with the U.S. telecommunications giants.

It may also signal that SpaceX (SPCX) is more serious about quickly becoming a major U.S. wireless operator, and one analyst says the company might pursue an acquisition in the sector to help it achieve that goal.

Qualcomm (QCOM) said Wednesday that its Dragonwing cellular infrastructure platforms will power the ground-based side of Starlink Mobile, the mobile service SpaceX wants to compete with the likes of Verizon Communications (VZ) and AT&T (T). SpaceX will also provide satellite-based coverage using thousands of its satellites in low-Earth orbit.

"Together with SpaceX, we are building world-leading cellular infrastructure in the United States, advancing 5G today, with an opportunity to lay the foundation for AI-native 6G in the years ahead," Durga Malladi, a Qualcomm executive overseeing data centers and other technology planning, said in a statement.

The multiyear agreement will cover tens of thousands of sites across the U.S., with the rollout beginning next year, Qualcomm said. It didn't disclose the financial terms of the deal, and BNP Paribas analyst Sam McHugh noted that there doesn't appear to be a firm commitment.

The deal adds to what McHugh called an "unprecedented" amount of visible planning by SpaceX to put together its own U.S. wireless network. It currently offers domestic Starlink Mobile services as an add-on with T-Mobile (TMUS) and has similar agreements in other markets.

SpaceX plans to buy spectrum licenses from at least a few companies and appears to be in talks with multiple cellular-tower operators to buy access to their infrastructure. CEO Elon Musk is also reportedly in discussions to possibly acquire EchoStar (ECHO) and its wireless assets, including Boost Mobile, or alternatively gain access to Boost Mobile's network.

"This suggests to us there is a clear strategy to try to ramp pressure on one of the Big Three to fold on an MVNO agreement (we think very unlikely), or at least depress multiples to make a potential acquisition of a carrier more accretive for SpaceX," McHugh wrote in a note to clients on Wednesday.

A mobile virtual network operator, or MVNO, agreement would allow a company such as SpaceX to lease network access from operators. Unfortunately for SpaceX, each of the big U.S. telecommunications companies have directly ruled out working with it. Verizon CEO Dan Schulman, for example, has said there would be "absolutely no benefit" to extending an MVNO deal to any satellite provider.

Convincing one of the telecom companies to agree to an acquisition is a likely challenging prospect, but it could pay off. Citi analysts have said purchasing a telecom operator could cut Starlink Mobile's time to market by as much as four years.

SpaceX has said it plans to turn initial service on by early 2028, while Musk has said that the full U.S. buildout will take two or three years . Conversely, some industry leaders and analysts say a more realistic timeline calls for 2030 or later.

TD Cowen's Gregory Williams last month called T-Mobile the "clear choice" for an acquisition, given its existing relationship with Starlink and its "maverick culture." A plan by T-Mobile owner Deutsche Telekom (XE:DTE) (DTEGY) to merge with its U.S. arm was put on pause last week, Bloomberg reported.

A representative for SpaceX did not immediately return a request for comment.

SpaceX's stock was down 4.8% in recent trading, while T-Mobile, AT&T and Verizon shares were each up. That's likely more of a reflection of the broader market following Tuesday's midterm elections than the Qualcomm announcement.

Qualcomm shares were rising 1.3% on Wednesday to buck the broader chip sector's weakness, with the PHLX Semiconductor Index SOX off 3.7%. But Qualcomm shares are down 2.6% so far this year, which the chip index has risen 44%.

The chip maker is scheduled to report fiscal fourth-quarter earnings after the market closes on Wednesday, and Wall Street is predicting a downturn in its business. Qualcomm is expected to report earnings per share of $2.16, a 28% year-over-year decline, and revenue of $10.1 billion, a 10% drop, according to FactSet estimates.

Bernstein analyst Stacy Rasgon wrote in a note to clients that while Qualcomm has been "doing everything they can to be viewed as something other than a smartphone company," handsets still account for the bulk of its chipset sales. He also lowered his estimates for Qualcomm's December quarter, citing a "markedly worsening environment" as a result of high memory prices.

-William Gavin

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11-04-26 1358ET