I have been bullish on Qualcomm (QCOM, Financial) ever since the stock was trading near 52-week low. Qualcomm has shot up about 20% since my first bullish call. The following are the factors that can send the shares higher.
The automotive industry
Qualcomm is mainly known for manufacturing processors for smartphones. Due to the gradually decreasing demand for smartphones, the company is now shifting its focus toward various other segments. One more reason for this shift is that some major companies are using chips in their smartphones manufactured by their own. As a result, there are fewer opportunities left for Qualcomm to reap huge profits from its mobile processor manufacturing business. Therefore, Qualcomm has entered in the automotive segment with some innovative ideas.
Autonomous vehicles market is in its infancy and is growing rapidly. One part that plays a vital role in electric vehicles is the battery, and Qualcomm’s Halo wireless electric vehicle charging (WEVC) system is an innovative and crucial technology that offers on-road charging of EVs.
The company has formerly proven itself as a premiere wireless electric vehicle vendor charging in the auto racing field. Moreover, the company also has the prospective to accomplish the identical feat in the passenger car industry as well.
There are various companies that are aggressively focusing on this market, such as Mobileye (MBLY, Financial), NVIDIA (NVDA, Financial), etc. However, NVIDIA and Mobileye are focusing on different subdivisions in the automotive industry whereas Qualcomm is trying to offer 360-degree solutions for the connected and autonomous car industry.
All in all, there is enough space in this sector to accommodate several companies and Qualcomm stands to benefit from it as well.
Will Apple hurt Qualcomm?
As per news from Bloomberg, Apple (AAPL, Financial) has decided to use Intel’s (INTC, Financial) 4G baseband modem on AT&T’s (T, Financial) network in its upcoming iPhone 7. However, Qualcomm will uphold business with Verizon Communications (VZ, Financial) as well as those sold in China. However, Apple’s decision to use Intel’s modem will not create much of a problem for Qualcomm because AT&T and Verizon accounted for just 20% of Apple’s overall sales the previous year.
On the other hand, the main problem for the company is the decelerating market for smartphones, not Apple’s decision. As a matter of fact, some regained business from competitor Samsung (SSNNF, Financial) and other Snapdragon consumers should offset this loss.
With Samsung’s Galaxy S7 performing nicely this year, Apple stands to lose some market share. Hence, Qualcomm should not be negatively affected by a large margin.
Conclusion
Qualcomm may face some problems due to the weakness of the smartphone market, but the company is shrewdly diversifying its revenue. As a result, Qualcomm still has more upside left.
Disclosure: I don't hold a position in any of the stocks mentioned in the article.
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