Qualcomm Inc. is a major manufacturer and marketer of circuit products like semiconductors and system software which are main components of its code division multiple access (CDMA) and OFDMA types of wireless devices used around the world. The company also operates wireless and Internet technology services through its subsidiaries.
Year-on-year, Qualcomm has increased the quantity of integrated circuits shipped by about 18 percent. With 141 million semiconductors and other integrated circuits produced and shipped for its CDMA (3G) and 4G technologies last quarter and more growth potentials as expressed in its second quarter results, Qualcomm has been found to hold the ace for more growth by many hedge funds including Tiger Management owned by Julian Robertson – the hedge fund legend, and Lee Ainslie’s Maverick Capital. Earlier on during the first quarter, Lone Pine Capital owned by Stephen Mandel and Rob Citrone’s Discovery Capital Management increased their Qualcomm stock holdings by 21% and 42% respectively.
Also, Tiger Management increased its Qualcomm stock holding by 58 percent while Maverick Capital made Qualcomm its single top holding stock when it increased its position by a whopping 147%. If you are wondering why these hedge funds are enthusiastic about Qualcomm, see the facts below:
Qualcomm’s Growth Prospects
Strong and sustained global demand for Qualcomm’s integrated circuit products remains a positive point for the company. In different parts of the world, upgrading of wireless technologies to either 3G, as it is in most of the developing world, or to 4G, as it is in other parts of the world, are taking place. That creates a sustained demand for Qualcomm’s products and services. Besides, the enhanced growth Apple is enjoying presently is another factor that makes Qualcomm’s fiscal performance highly promising because Apple has now turned to Qualcomm for the supply of the chips it needs for its iPhones and iPads.
Above all, the expected release of Apple iPhone 5 is bound to improve Apple’s sales and consequently improve Qualcomm’s earnings and profits. Within a year of Apple’s patronage of Qualcomm’s chips, the transaction alone amounted to 5.8% of Qualcomm’s earnings.
In addition, Qualcomm’s management has strengthened the stock with share buyback transactions worth $4 billion as announced last March in addition to boosting its dividend payouts by about 16% to make the stock attractive to all categories of investors. Also, the company has comparative advantage over its competitors such as Nvidia (NVDA) and Texas Instruments (TXN), because it designs and manufactures its own cores and chips, and its customer base keeps growing with Nokia (NOK) in line with other companies like Research In Motion (RIMM), which is allegedly using Qualcomm’s chips for its new BlackBerry 10 yet to launch.
Evaluation and Outlook
Qualcomm maintains excellent cash flows and net margins. Its growth in revenue has been about 28% year-on-year, but it dropped 7% quarter-on-quarter because its shipment during last quarter decreased by 7 million from the projected 148 million to the actual value of 141 million. Qualcomm is gradually building its reputation as a dividend stock and it is unarguably a growth stock using all standard metrics. Qualcomm is already the choice stock for reputable hedge funds and value investors. I believe the company is able to sustain its current growth statistics and improve on them. Therefore, I recommend QCOM stock to all categories of investors without any reservation.