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Qualcomm: Is It Worthy of Being in Your Portfolio?

April 09, 2014 | About:
mitu77

mitu77

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Chip manufacturer Qualcomm (QCOM) is gaining the most from the market growth of smartphones and tablets. Analysts and market researchers anticipate the global smartphone application processor market to grow at a CAGR of 49.5% over the period 2011 to 2015. This growth is based on the fact that smartphone devices and the tablet market have witnessed remarkable growth in the past and continue to grow. Smartphone shipments are projected to reach 1 billion every year by 2016, with an average CAGR of 17.7% from 2011 to 2016.

Qualcomm is one company that is reaping the benefit of this market. The company is known for its innovations with processors and new product releases that make it one of the favorite chipmakers among smartphone and tablet manufacturers.

New Products

Qualcomm has been regularly building up its processor portfolio with new releases and enhanced processors for mobile phones. The company recently launched next generation Snapdragon 810 and 808 processors. These processors are expected to begin sampling in the second half of 2014 and are expected to be available in commercial devices in the first half of 2015. This adds on to the 64 bit processor portfolio of Qualcomm and it would give tough fight to Intel’s 64 bit processors which are also expected to be available for commercial use in the same time frame.

Samsung Picks Qualcomm for Tab-4

Samsung, one of the leading smartphone and tablet manufacturers, has opted for Qualcomm as a supplier for its Tab-4. The most interesting part is that Samsung itself manufactures chip sets, but has opted for Qualcomm for its Tab-4. Qualcomm has been a leading vendor for tablet manufacturers. Not just Samsung, but all leading non-iPad tablet brands in the market seem to have Qualcomm inside.

What made Samsung select Qualcomm chips despite being a chip manufacturer?

  • Highly integrated architecture that offers best connectivity.
  • Cost effectiveness that can help Samsung to compete in the cost-effective tablet market.
  • Proven and time-tested vendor for Samsung.
  • Extravagant in research and development that enables it to churn out processors with futuristic features.

Financials

The company’s most recent quarterly report revealed revenue growth of 10% to $6.62 billion. That said, growth of 17% was seen in MSM chipsets to 213 million units. This exceeded the company’s guidance of 202.5 million.

The company generated $2.78 billion in cash from its operations as against $1.975 billion in the same quarter last year. Free cash flow was also much higher as compared to last year.

Journey Ahead

For fiscal 2014, the company anticipates revenue to fall in range of $26 billion to $27.5 billion. EPS is expected in the range of $4.33 to $4.53 on GAAP basis, while non-GAAP EPS is expected to be in the range of $4.49 to $4.69 which includes stock-based compensation of $0.51 per share.

The average selling price of mobile handsets with Qualcomm chips is projected to be around $216 to $230.

Qualcomm is expected to ship 180 million to 195 million MSM chipsets in the second quarter of fiscal 2014.

Competitor

Intel (INTC), a chipmaker with an established name, also has a strong road map for 64 bit processors. This will be in competition with 64 bit Qualcomm processors. Intel also eyes the chipset for low cost smartphones (below $200), that have huge potential in Asian countries like China and India. The company plans to launch 64 bit mobile chipset based on 14nm design with high end graphics by the second half of 2014. Moorefield, soFIA, and Chery Trail are the three various 64 bit quadcore processors that are in the Roadmap for Intel in 2014. Furthermore, in 2015, Intel plans to launch Broxton that is designed for easy upgrades and reconfiguration. This chip is based on Goldmont architecture.

Conclusion

For investors who look for a dividend paying company, I think Qualcomm’s dividend history should encourage them to buy the stock. The company recently declared a dividend of $0.42 per share. This is a 20% increase from the previous dividend which was $0.35 declared in January 2014. The consensus estimated forecast for EPS is projected to be $4.61.


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