At this very moment when Apple and Samsung are struggling to expand their market, and get the better of each other, QUALCOMM, Inc. (NASDAQ:QCOM) without much difficulty is emerging victorious. It dominates the mobile chip manufacturer market and has good potential to deliver, for its investors. Let’s see how.
Qualcomm’s current position
Qualcomm Q1 2013 performance was phenomenal. Earnings and revenue both were nearly 30% up compared to last year. Apple uses most of the chips designed by Qualcomm. Though Apple has left investors skeptical about future returns from it, Qualcomm has outperformed. The unparalleled performance by the chip giant is due to its relationships to other tech companies such as Samsung, Nokia and HTC.
The company owns a number of patents that provide it with a steady flow of revenue. This should improve further as licensing revenue is expected to grow 17% in the current year. Qualcomm receives a handsome 5% of the price of handsets on all CDMA-enabled 3G devices and the 3G network is nowhere near its saturation point.
Last year, Qualcomm shipped 86% of the total 47 million LTE-capable chips which shows its supremacy in the LTE market. The company receives around 3.2% of the price of a 4G LTE network enabled device as its revenue. Currently the amount of data traffic through 4G is only 1% of the total traffic but it is expected to grow ten folds in the next five years that should give the company’s top and bottom line a major shift upward.
Moreover, it is sincerely dedicated towards mobile processors and also its processors are found in Nokia Corporation (ADR) (NYSE:NOK)‘s Lumia phones, Research In Motion Ltd (NASDAQ:BBRY) BlackBerry‘s new BB10, Samsung and HTC phones and tablets. Qualcomm’s patents and processors perk up its position to benefit from future growth of 4G mobile and its 3G business still has a lot of potential.
The company has a clean balance sheet with debt of only $60 million and a cash balance of $12 billion. Qualcomm without doubt is trading at a premium with a P/E ratio over 18 times while the industry P/E averages around 15 times. Its premium is well supported as it is operating at a net margin of 32%. Further, its five year annual revenue growth clocks in at 17% and is expected to grow at 25% in 2013.
Let’s game it up
NVIDIA Corporation (NASDAQ:NVDA) has ruled the PC graphics and performance segment of the market and has made tablets, smartphones, and handheld gaming its new focal point. Lately, Qualcomm has benefited from the rumors that its processor will be used in Google’s next version of Nexus 7 tablet rather than NVIDIA’s Tegra 3.
The actual picture still remains unclear, because if Google wants a single source, it can still depend on NVIDIA. NVIDIA’s Tegra 4 is now attuned with 4G LTE resolving the concern that would have been relevant last year, when it had not made its Icera basebands LTE-compatible. Moreover, the report claims that Google is eyeing the standalone APQ8064 chipset rather than LTE-integrated MSM8960, which is a little difficult to believe that it will choose an older Snapdragon above the most recent Tegra.