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
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

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!