I have been bullish on Qualcomm (QCOM, Financial) for several months now and the stock has shot up almost 40% since my initial recommendation. Going forward, I think investors don’t have any reason to book profit as Qualcomm’s prospects look bright. To further sweeten the deal, Qualcomm even has an attractive dividend yield of 3.38%, thereby making the stock a great pick.
Competition Is Rapidly Rising
In 2015, Qualcomm was badly hurt when smartphone giant Samsung (SSNLF, Financial) didn’t use its processor in its flagship models Galaxy S6 and S6 Edge. However, the story was a lot different this year, as Samsung used Qualcomm’s 820 Snapdragon processor in its flagship models S7 and S7 Edge (in some specific regions).
Still, Qualcomm faces brutal competition from smartphone manufactures such as Apple (AAPL, Financial) and Huawei, which use their own ARM-based chip designs instead of Qualcomm. This year, Samsung also powered some of its premium devices with its own Exynos chips.
Xiaomi, Qualcomm's most significant customer, is also developing its own Rifle chips, specifically for low to mid-range smartphones.
Major players such as Samsung and Apple are taking steps to build their own chips because it allows them to control costs, conserve their supply chains and optimize their software for their own chips. Due to this, Apple's presence in the worldwide application processor market is increasing at a healthy rate.
As a result, Apple has successfully gained second place, just after Qualcomm. This could have a bad impact on the company’s revenue generated by the chip manufacturing segment.
What’s Ahead for Qualcomm?
Qualcomm has increased its dividend for 13 successive years. As the company has realized that its chip making business is facing obstacles in the smartphone segment, it is shifting its focus to Internet of Things, drones and several other markets.
In the most recent quarter, the company reported strong sales of its Snapdragon 820 and 821 chips. Moving onward, it is highly likely that new chips for wearables, drones, connected cars and other IoT gadgets could permit the company to display 2% sales growth in 2017.
Furthermore, new licensing deals with Chinese OEMs and contracts with regulators should also decrease the stress on the company’s licensing business, possibly enhancing the bottom line by 11% in 2017.
Conclusion
Qualcomm looks like a great bet despite the recent upsurge, as the company’s growth prospects are very strong. Thus, I think Qualcomm is still a buy.
Disclosure: I don't hold a position in any of the stocks mentioned in the article.
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