ARM Holdings plc (ADR) (NASDAQ:ARMH) makes its living by developing and licensing its technology to manufacturing companies like QUALCOMM, Inc. (NASDAQ:QCOM), who want to save on development costs. ARM then collects royalties and works on engineering the blueprints for the next wonder-chip. You could say that ARM is the brains of the whole operation.
ARM is smaller than Intel, and its revenues were just $708 million in 2012. But ARM was able to turn 23% of its revenues into profit compared to Intel’s 20%. And although Intel is trying to penetrate the mobile market (Intel’s chips will be in the new Samsung Galaxy Tab 3 tablet), ARM is too established for Intel to be a serious threat.
ARM’s reach is great, and the company figures to have the dominant share in a rapidly expanding market for years to come.
Don’t forget QUALCOMM, Inc. (NASDAQ:QCOM)
QUALCOMM, Inc. (NASDAQ:QCOM) is a firm that both develops and manufactures microprocessors, with an emphasis on manufacturing. Qualcomm manufactures over 50% of the ARM chips that go into smartphones and tablets, giving the firm a dominant position in the market.
Another plus for QUALCOMM, Inc. (NASDAQ:QCOM) is its share of the new LTE network (the framework for 4G). QUALCOMM, Inc. (NASDAQ:QCOM) owns an 86% market share in LTE smartphone modems, which means that QUALCOMM, Inc. (NASDAQ:QCOM) will benefit greatly as 4G rapidly expands around the world.
In addition, Qualcomm is looking to make strides in the world’s largest market: China. Qualcomm recently developed a chip that is compatible with China Mobile’s technology, giving Qualcomm major upside when it comes to international growth. Currently, only 29% of the Chinese market has smartphones, so Qualcomm has plenty of room to grow.
Bottom line
Of the three, I would go long with ARM. Tablet and smartphone sales are headed up, and ARM has that market firmly in its grasp. I think that Intel will eventually gain a bit of mobile market share from ARM, but let’s be honest, Intel’s core PC industry is crumbling. Intel’s stock price will eventually reflect this reality.
I think Qualcomm is a better investment than Intel, but Qualcomm is somewhat dependent on ARM for much of its technology. With that in mind I would still go long with ARM over Qualcomm.
Don’t let your portfolio stop at Google or Apple. Dig deeper, see what’s inside.
The article You Could Be Missing Some Huge Profits originally appeared on Fool.com is written by Marie Palumbo.
This article was written by Randy Holcombe and edited by Chris Marasco and Marie Palumbo. Chris Marasco is HeadEditor of ADifferentAngle. None has a position in any stocks mentioned.The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and Qualcomm.
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