Qualcomm (QCOM, Financial) holds a leading position in cellular communication technology. Qualcomm is mainly known for manufacturing processors used in high-end as well as low-end smartphones, but the company decided to enter into several other segments this year.
The reason for diversifying its revenue stream is because the company has been losing its grip on the mobile semiconductor market. In 2015, the company’s share of the mobile baseband market came in at 59%, a drop of 7% from 2014. That drop was chiefly due to rising competition, especially the arrival of opposing chip manufacturers in China.
As a matter of fact, there are numerous segments in the technology sector that present huge growth opportunities for the company. If taken, these opportunities could permit Qualcomm to deliver hasty growth in the imminent years.
According to a forecast report from IDC, smartphone shipments are projected to surge only 3.1% by the end of this year, signifying a drop of 7.4% from 2015 and 24.7% from 2014. Moreover, it is being predicted that smartphone shipments will continue to dwindle in the upcoming years.
Smartphone shipments are projected to reach 1.48 billion this year and escalate to 1.84 billion in 2020, which throws light on the sluggish growth rate of the smartphone industry. To overcome this issue, Qualcomm has planned to acquire NXP Semiconductors (NXPI, Financial) for $47 billion. NXP holds a leading position in the automotive industry.
The most important thing to keep in mind about the deal with NXP is that it will give the company access to a substantial market. The automobile chip market is anticipated to display swift growth due to the integration of self-driving features.
On the other hand, the company recently publicized the marketable sample of its ARM architecture server processor, the Centriq 2400. The Centric 2400 comprise 48 custom ARM CPU cores and is fabricated on a 10 nm FinFET process technology. The 10nm FinFET was first mass produced by Samsung (SSNLF, Financial). It is worth noting that the use of FinFET technology will eventually put Qualcomm ahead of Advanced Micro Devices (AMD, Financial) and Intel (INTC, Financial).
Summing up
Although Qualcomm is up approximately 35% this year, it looks like the stock has more upside to offer. Moreover, Qualcomm is headed in the right direction, as acquiring NXP Semiconductors will certainly prove to be a blessing for the company. Apart from this, Qualcomm is also the first company to produce chips based on 10 nm FinFET technology. All in all, Qualcomm is a buy considering it is depending on its ARM architecture for impending growth.
Disclosure: No position in the stocks mentioned in this article.
