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By: Ahmed Ishtiaq

Qualcomm (QCOM) semiconductors, manufacturer for mobile phones, is emerging as the most important player in the sector. The company has stayed away from the limelight till now. However, now the company is announcing its presence on the big stage in a very effective way. Qualcomm is the biggest player in the Smartphone chips market, and caters to some of the largest Smartphone manufacturers. The company has an amazing combination of semiconductor manufacturing and licensing business.

The best thing about the company is the segment it caters to. At the moment, the smartphones market is experiencing a boom, which allows the company to achieve phenomenal growth. There is a massive growth opportunity for Qualcomm in its respective markets, and I believe the company will grab the opportunity. The stock has returned substantially over the past twelve months. However, I believe Qualcomm will do even better in 2013.

Massive Growth Opportunity in the Market

Qualcomm is operating in a rapidly growing market. During 2012, the market for mobile semiconductors reached $31 billion. Sales of mobile semiconductors showed 18% year-over-year increase. Smartphone and tablet demand is on the up, pushing the mobile semiconductor sales higher. Samsung Electronics (OTC:SSNLF) and Apple (AAPL) are the biggest players in the Smartphones market. Over the past twelve months, Qualcomm shipped 249 million units and the company now holds 25% of the market share in Smartphone chips market.

Main growth for Qualcomm is coming from China and emerging markets, where low cost Smartphones are popular. Furthermore, Qualcomm holds 56.5% market share in the cellular baseband market. The mobile semiconductor market is expected to grow to $39 billion a year by 2016. Qualcomm announced turnover increase of 30 per cent. The company has a turnover of roughly $13 billion, which puts it in third place behind Intel Corporation (INTC) and Samsung. Overall, Qualcomm shipped 590 million chipsets for smartphones and other mobile devices. The company still has to cover a lot of ground on the Industry leader, Intel.

Future Products and Partnerships

Qualcomm recently unveiled its new chipset at CES, which will be launched in the summer. The chipset will significantly enhance the performance of mobile devices. The new chipset is named "Snapdragon 800", and it has unrivaled features in the mobile chipset market. The chipset has processing power that is almost equal to that of PC chips; the processor is 75% faster than S4 Pro. Furthermore, graphics processing of the platform can handle "UltraHD" content that has four times the resolution of full HD.

In addition, the chipset provides the fastest wireless connectivity. It features the 4G wireless communications standard LTE on the chip, and next-generation WiFi. More than 50 products have already been designed to use the Snapdragon 800. Furthermore, the company is also working on establishing some partnerships. Audi recently announced that Qualcomm will provide in-car technology for A3 models. Qualcomm will provide Audi with wireless 4G LTE connectivity, which will have data rates close to 100 mbps.

Competition

Qualcomm is the third biggest producer in the semiconductors market based on revenues. Intel is still the biggest player generating massive revenues. However, Qualcomm faces significant competition in all segments. Intel is also trying to get some share in the mobile market. On the other hand, Apple and Samsung make their own chips. Another emerging rival for Qualcomm is MediaTek Inc (OTCQB:IMKI). This emerging rival showed ten fold year-over-year increase in its Smartphone application processors. Qualcomm's Snapdragon processors have given it an advantage over competitors. However, the company faces increased competition from Broadcom Corporation (BRCM), MediaTek and Spreadtrum Communications (SPRD). Table below lists some important metrics for comparison.

QUALCOMM

INTEL

BROADCOM

MEDIATEK

SPREADTRUM

P/E

21.2

9.6

27.5

26.6

8.7

P/B

3.3

2.2

2.6

2.4

2.3

P/S

5.9

2.1

2.6

3.8

1.1

EPS Growth

54.60%

37.50%

59.10%

-11.50%

48.10%

Operating Margin

29.70%

29.90%

8.90%

14.09%

15.22%

Net Margin

32.00%

22.10%

9.30%

16.73%

14.38%

ROE TTM

22.20%

25.00%

10.60%

13.93%

32.88%

Debt to Equity

0.00

0.10

0.20

6.17

0.24

Sources: Morningstar, Bloomberg and Finviz

Qualcomm has the most impressive margins compared to its peers, and the company has EPS growth rate of 54%. Furthermore, the company has debt-to-equity ratio of 0. In addition, the stock is trading at attractive multiples.

Summary

Qualcomm has been one of the best performing companies over the past twelve months. I expect the company to continue its healthy growth in 2013. There are a lot of opportunities for Qualcomm to grow in the next twelve months. Mobile chipsets market is growing at an exceptional rate, which will allow Qualcomm to achieve substantial growth. Qualcomm will be able to exploit this growth opportunity due to its presence in the market. I believe the stock will prove be a solid investment, and return substantially to its investors.

Source: Qualcomm Has Substantial Upside Potential