Really, Qualcomm has been at the top of the mobile revolution with its innovative chipsets like the Snapdragon 800 that powers notable brands of smartphones that include the recently released Nexus 5. The dominance of Qualcomm in the chipset market isn’t going to end soon despite Intel (INTC)'s unrelenting incursion into the production of processors for mobile phones and other smart devices after the global PC chip market dwindled.
Since Qualcomm’s fourth quarter 2013 results show that sales of smartphones are healthy, Qualcomm remains the chip maker to beat, and its stock also remains an attractive investment going forward. The reason is that Qualcomm has an edge over its competitors on the ground of economics of scale and also because the company’s mobile chipsets have been the favorite of manufacturers of several wireless devices for years.
In my own view, Qualcomm is unlikely to lose its leadership of the chipset market anytime soon irrespective of the type of semiconductor the competition, which includes NVidia (NVDA), chooses to design and produce.
A Review of Qualcomm’s Quarter Four 2013 Results
Qualcomm’s fourth quarter revenue for the fiscal year ended September 2013 came in at $6.48 billion, up 33% from $4.87 billion which the company reported for the corresponding quarter in 2012. Qualcomm’s fourth quarter 2013 revenue exceeded analysts’ consensus of $6.34 billion by $0.14 billion. On the basis of segments, the bulk of the revenue for the quarter was generated by Qualcomm CDMA Technologies (QCT) at $4.46 billion representing an increase of 42% year over year while Qualcomm Technology Licensing (QTL) generated $1.87 billion revenue up by 19% year over year.
Qualcomm reported net earnings of $1.5 billion or $0.86 earnings per share (EPS) up from $1.27 billion or $0.73 earnings per share (EPS) which the company reported a year ago. After making necessary adjustments, Qualcomm’s fourth quarter 2013 earnings came in at $1.82 billion or $1.05 per share in comparison with $1.55 billion or $0.89 per share reported a year ago.
In addition, Qualcomm returned value to its shareholders via $3.32 billion share buyback policy for 50.7 million shares of the company’s common stock. Also, a cash dividend of $0.35 per share was declared for the quarter.
Weak Projected Earnings Spark a Dip in Qualcomm’s Stock Price Paving the Way for Value Investors to Buy More of Qualcomm
For its financial guidance for the 2014 fiscal year, Qualcomm projects revenue in the range of $6.3 billion to $6.9 billion for the first quarter or earnings per share of $0.92 to $1.02 which falls short of analysts’ consensus revenue estimate of $6.99 billion or $1.29 earnings per share. For the entire 2014 fiscal year, Qualcomm expects revenue within the range of $26 billion and $27.5 billion. The company’s projected net earnings for 2014 fall between $4.25 and $4.45 per share and the adjusted earnings expected are in the range of $4.95 to $5.15 per share as against analysts’ revenue estimate of $27.5 billion and $4.95 earnings per share.
If anything at all, investors perceived the softness in Qualcomm’s projected revenue and adjusted earnings for 2014 fiscal year as a sign of weakness leading to a 5% drop in its stock price during the after-hours trade immediately the quarterly results were announced to the investing public. However, I think the softness in its projection for 2014 fiscal year isn’t a sign of a decline in Qualcomm’s business but rather; it is a sign that Qualcomm’s business is for the long term particularly when viewed from the perspective of the fundamentals and the future earnings capability of the company.
In his forward looking statements, Paul Jacobs, Qualcomm’s CEO, assures investors about the growth prospects of the company with the following words contained in the first page of the company’s press release for the fourth quarter 2013 results:
“Looking forward, we expect continued strong growth of 3G and 3G/4G multimode devices around the world, particularly in China with the anticipated launch of LTE. Qualcomm remains well positioned from a growth standpoint, and we expect double-digit compound annual growth rates for both revenues and earnings per share over the next five years.”
Qualcomm’s Valuation and Future Outlook
Global demand for Qualcomm’s integrated circuit products is currently strong and sustainable for the long term, making Qualcomm’s long-term fiscal performance highly promising. Also, upgrading of wireless telecoms technologies to either 3G LTE or 4G LTE is ongoing all over the world depending on the part of the world concerned. That also leads to a sustained demand for Qualcomm’s products and services. In addition, Qualcomm designs and manufactures its cores and chips and, hence, it has a comparative advantage over the competition. Therefore, Qualcomm remains a BUY for value investors who value the company’s inherent long-term potentials.