Qualcomm Inc. (QCOM, Financial) was off to a dull start heading into 2017. Shares of the chip manufacturing giant were down almost 24% year to date in September. Since reaching its 52-week low, the stock has displayed some strong signs of a turnaround and is currently down just 5% year to date.
The company has been in troubled waters this year mainly due to growing competition and ongoing disputes with Apple (AAPL, Financial). The chip manufacturer's business has taken a hard hit in recent quarters, and this has weighed heavily on its share price.
Qualcomm reported healthy third-quarter results on Nov. 1. For the quarter, the chip-maker shared earnings per share of 92 cents, surpassing the analysts' estimate by 11 cents. On the other hand, its revenue came in at $5.90 billion, beating the consensus by $100 million.
Though that figure represents a drop of 4.4% year over year, it was considerably better than the third quarter. Despite being entangled in a costly legal battle with Apple, Qualcomm successfully managed to beat the analysts' estimate on both the bottom-line and the top-line front, which is remarkable.
While the shipments of 3G/4G devices around the globe remain firm, the company also is aggressively focusing on 5G, a market that is projected to take off next year.
For the full year, the company’s free cash flow came in at $6.1 billion, a drop of 15% year over year. The company paid dividends of nearly $3.3 billion, representing a surge of 9% year over year, and returned $1.3 billion to shareholders via share repurchases.
Qualcomm is currently facing some problems regarding its NXP Semiconductors (NXPI, Financial) acquisition deal, but it still expects to close the deal by the end of this year. The company might have to escalate its bid for NXP, which may have a negative impact on its earnings as well as revenue. But once the acquisition gets completed, the combined product portfolio will help the company expand its footprint in several high-growth markets.
Apart from these, another significant thing to notice is that shares of Qualcomm surged nearly 13% in a single trading session on Nov. 3. That was primarily due to the news that Broadcom (AVGO, Financial) is planning to acquire Qualcomm for over $100 billion. Although Broadcom has not placed a bid yet, it plans to make a bid for Qualcomm this week. If the deal goes through successfully, it would be the biggest takeover of a chip manufacturer.
Summing up
Despite performing much better than expectations, the company said its quarterly results were negatively influenced due to the lawsuits filed by Apple and several other contract manufacturers. It looks like the ongoing disputes between Apple and Qualcomm will continue hurting its results in the near term, but its long-term growth story remains intact.
The company is well positioned to gain tremendous benefits going forward as it carries on exploring high-growth markets such as the Internet of Things, Automotive and Security to offset the dwindling allure of smartphone and tablet radio chips.
On the other hand, it also offers a dividend yield of 3.7%, which is highly impressive. As a result, shareholders should overlook the near-term issues and instead focus on its long-term growth potential.
Disclosure: No positions in the stocks mentioned in this article.
