Qualcomm (QCOM), whose motto says "innovation is more than something we do, it's who we are" is a global technology company that has an incredibly clear advantage over its immediate competitors like Intel (INTC), Nvidia (NVDA) and Samsung (SSNL.PK). Qualcomm’s leadership in the digital telecommunications industry as a producer and marketer of high-end digital telecoms products like semiconductors or chipsets and system software which are the main components of its CDMA(code division multiple access) technology & OFDMA types of wireless devices used by telecoms companies around the world is bound to extend to the foreseeable future for some reasons which includes:
1. The company is currently benefiting from an array of differentiating income yielding opportunities not being tapped by Intel or other tech competitors in the same industry.
2. Qualcomm is a company reputed for providing solid innovation and lasting digital telecom originality to its customers.In fact, the company is making good bets with new and innovative technologies that could continue to work in its favor. A good example is the adoption of the new LTE (Long Term Evolution) that is, the 4G technology which the company is hugely profiting from currently. In fact, analysts’ forecasts show that the LTE market will grow to $262.05 billion in 2015.
3. Qualcomm continues to record incredible gross margins which enable the company to provide funding for its critical research and innovative strategies.
4. The adoption of smartphones and other mobile devices is the new trend globally and it promises to continue into the foreseeable future.
Comparing Intel with Qualcomm
Both Intel and Qualcomm are major producers of processors for cell phones and other mobile devices. However, Qualcomm is the leader in this niche market with the vast majority of processors for 3G and 4G phones and smart devices being made by the company while Intel is left to dominate the dwindling PC market. Really, it is hard to tell whether it is Intel or Qualcomm that will dominate the mobile chip making niche in the future as Intel has been making inroad in the area once firmly dominated by Qualcomm. In my own view, I believe that Qualcomm has an edge over Intel because its chipsets have been the favorite of several wireless device companies for years and I don’t see that trend changing anytime soon irrespective of whatever Intel makes.
On the basis of revenues and profit gains made by both tech companies in the past years, Intel hasn’t been able to come close to the results posted by Qualcomm. In terms of income, Qualcomm is more profitable than Intel. The strength of Qualcomm is its chipset business where it makes most of its incomes – about three fourths, precisely. Though stiff competition continues to mount against Qualcomm in the sale of its wireless chips but the company’s licensing model for selling its chips seems to be the pillar of its future profitability.
Qualcomm’s Evaluation and Growth Prospects
Qualcomm’s breakthroughs in research and development services in data and voice communications technologies is what most wireless companies cherish and the company has been able to sustain the trend through a series of innovations and strategic partnerships. In the 2012 fiscal year alone, Qualcomm acquired eight strategic tech startup companies worth $774 million. I believe this approach will sustain Qualcomm for the long term because the communications industry is largely characterized by frequent changes in technology.
The company’s investment in R&D continues to grow and several intellectual properties are being added to the company every passing year. For example, about $3.9 billion were expended on R&D in 2012 fiscal year by Qualcomm. As at the moment, Qualcomm’s patent portfolio is the most sorts after in the telecommunication industry and it generates earnings for the company from about 220 licensees. In fact, most players in the telecommunication industry knows that any company seeking to tap into the CDMA technologies either to design, produce or sell any products relating to this technology must buy a licence from Qualcomm or seek the right to use any of its patents.
On the scale of valuation, the price earnings ratio (P/E) of Qualcomm is in the multiple of 17.8 and its forward P/E is estimated to be 13.54. The expected price earnings ratio for 2014 fiscal year is estimated to be $4.94. If that prediction comes to pass, we should expect the Qualcomm stock to appreciate by about 15% to 18% in the next one year. In my opinion, Qualcomm stock is a BUY!