QUALCOMM, Inc. (QCOM): Despite Lower Earnings Guidance, This Chipmaker Is a Buy

Page 1 of 2

QUALCOMM, Inc. (NASDAQ:QCOM) is benefiting from the increasing demand for smartphones and the growing focus of network operators worldwide to implement high-speed wireless technology, popularly known as LTE, or long-term evolution.

The chip maker’s stock has been a bit volatile lately. Despite record earnings, shares fell 7% due to the company’s lower-than-expected earnings outlook for the upcoming quarter. Since then, the stock has moved up in line with market expectations. So, where will the stock move from here?

Growth drivers

QUALCOMM, Inc.QUALCOMM, Inc. (NASDAQ:QCOM) has teamed up with Japan’s Sharp to mass produce displays for mobile devices, and those components have the potential for much faster response times and use a fraction of the power required by LCDs. However, manufacturing cost is the main concern here, and if the company manages to control the cost, this technology will prove an important weapon in developing markets.

The chip maker continues to up its R&D spending to take advantage of new market opportunities, such as tablets. QUALCOMM, Inc. (NASDAQ:QCOM) spent $1.88 billion on R&D and SGA expenses in the second quarter, which is a 21% jump from the same period a year ago and an increase of 11% sequentially. For the current quarter, the company expects a 2%-4% rise in R&D spending.

Until now, major devices like Samsung’s Galaxy S4, the HTC One, and the Sony Xperia Z, were using Snapdragon 600, but the more powerful Snapdragon 800 will now be used in tablets and phablet devices. The initial responses show that Snapdragon 800 is much more powerful and equally efficient, and will go a long way to enhance offerings from the chip maker.

QUALCOMM, Inc. (NASDAQ:QCOM) not only makes chips for high-end devices like the iPhone and Galaxy lineup, but its offerings are also used in lower-priced handsets popular in Asia and other emerging markets. These markets will help the company to carry on the growth trend once the U.S. market saturates. However, lower end devices command a lower margin for Qualcomm, as manufacturers pay fewer royalties and acquire cheaper components.

Comparison with rivals

Share Price* 52-Week Range PE Forward PE ROE
BRCM 33.77 28.60 - 37.85 23.41 10.67 11.02%
INTC 24.06 19.23 - 26.90 11.88 11.76 21.06%
QCOM 60.95 53.09 - 68.50 17.09 12.41 17.87%

*as of June 5, 2013.

Broadcom Corporation (NASDAQ:BRCM) and Intel Corporation (NASDAQ:INTC) are QUALCOMM, Inc. (NASDAQ:QCOM)’s closest competitors. Shares of all three firms are trading in the upper range of their respective 52-week highs, reflecting positive sentiment for the industry. For Broadcom, PE looks slightly higher, making it a bit more expensive, while Intel and Qualcomm look decently valued. Forward PE for both Broadcom Corporation (NASDAQ:BRCM) and Qualcomm reflects that earnings are expected to rise for these two. For Intel Corporation (NASDAQ:INTC), there is a slight change in forward PE, suggesting earnings are expected to be flat. Intel commands the highest ROE among the three, followed by Qualcomm.

Concerns

The advantage enjoyed by the chip maker in the LTE segment may soon wither as an increasing number of smaller players are attracted to the high-growth market. These players will be a major challenge for QUALCOMM, Inc. (NASDAQ:QCOM) in the developing countries, as they are improving on technology and are ready to adjust on profits in exchange for market share.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!