Qualcomm (QCOM, Financial) has staged an impressive comeback after falling to 52-week lows earlier this year. The stock is up 20% since touching those lows and has also performed well since I recommended buying it. Considering Qualcomm’s generous dividend yield, the stock is still a good buy for defensive as well as aggressive investors.
Qualcomm still holds a top position
Qualcomm is mainly known for manufacturing processors for mobile devices such as smartphones, smartwatches and tablets. The company also licenses its intellectual property, gathering a royalty on just about every 3G and LTE device retailed. That IP offers the company more of a channel as compared to other businesses in the industry.
Although its patent collection on 4G is not as strong as LTE and 3G, most devices will require being in reverse compatible, offering plenty of force for the company to come across new agreements with smartphone producers.
The company’s chip business has had some misfortunes lately, like Samsung (XKRX:005930, Financial) deciding to manufacture chips for its flagship devices, Huawei (SZSE:002502, Financial) manufacturing several kinds of chips with the help of its HiSilicon property and Xiaomi apparently considering manufacturing its own chips as well. However, the company got good news this month when its foremost rival, Intel (INTC), chose to move away from the mobile processor segment.
Qualcomm undoubtedly faces a lot of short-term stress. Despite the fact that Qualcomm’s chip business revenue is dropping, the company ought to persist at the top position of the smartphone chip segment as flagship models signify only a trivial percentage of handsets sold around the globe because a major portion of the growth comes from lower-end devices.
Intel's exit from the mobile processor segment
Throughout the last three years, Intel used up more than $10 billion to achieve smartphone market share contrary to ARM licensees like MediaTek and Qualcomm. Intel’s plan was to support OEMs with substantial contra revenues, which comprised profound discounts on Atom chips, financial assistance in redesigning logic boards and co-marketing agreements.
Yet that expensive tactic only fascinated a few second-tier smartphone manufacturers, and Intel processors were used in only 1% of the world's mobile phones at the end of 2015. Intel’s efforts have not reaped any rewards, and its failure is beneficial for Qualcomm as it continues to dominate the market.
Conclusion
Smartphone sales are shrinking, which is a headwind for Qualcomm; however the company has improved considerably this year and should gain market share. Given its generous dividend yield and prospects, Qualcomm looks like a good buy right now.
