Qualcomm Inc. (NASDAQ:QCOM) designs, develops, manufactures, and markets digital telecommunications products and services, including developing and licensing wireless technology and manufacturing semiconductors for mobile phones.
On March 5, 2013, QCOM announced a new $5.0B stock repurchase program to replace the prior $4.0B stock repurchase program, which had $2.5B of repurchase authority remaining. Repurchases under this program will be made using the company's cash resources and may be commenced or suspended at any time or from time-to-time at the company's discretion without prior notice. Repurchases may be made in the open market, through 10b5-1 programs, in privately negotiated transactions or through the use of derivative instruments. QCOM currently has 1.72B shares outstanding. With this new repurchase program, up to 73-74M shares could be repurchased based on the current trading price, reducing up to 4.2-4.3% of total outstanding shares.
QCOM's Board of Directors had approved a 40 percent increase in the company's quarterly cash dividend. The dividend will increase from $0.25 to $0.35 per share, or $1.40 per share annually. This gives the dividend an approximate 2 percent yield based on the current price level.
As quoted from Dr. Paul E. Jacobs, chairman and CEO of Qualcomm,
"In recognition of our strong financial position and continued growth in our business, we are pleased to increase our quarterly cash dividend to a record 35 cents per share and to introduce a new $5.0 billion stock repurchase program. Our business model continues to generate strong operating cash flows that enable us to invest in and execute on our strategic priorities, while also returning capital to stockholders. Since these programs began in 2003, we have returned $19.9 billion to stockholders through a combination of stock repurchases and cash dividends."
On February 12, Rod Hall, the analyst from JPMorgan, indicated "As the windfall from high 28nm chip demand recedes into the rearview mirror we believe this eventual market deceleration is likely to become more of a focus for Qualcomm investors." JPMorgan sees 37% smartphone growth in 2013 and expects growth slowing to 17% in 2014. 3G ASPs are likely to begin declining this year as cheaper tablets and smartphones weigh into the mix. On the other hand, Intel (NASDAQ:INTC) is catching up to the mobile segment. However, QCOM will continue to benefit from the increasing population of smartphones and the demand for next-generation wireless technology, LTE. QCOM will also gain from the trend for larger display for smartphones. Lastly, QCOM will deliver new Snapdragon 800 and 600 processors, where Snapdragon 800 will deliver 75% better performance than S4 Pro processor while Snapdragon 600 will deliver up to 40% better performance. Snapdragon 600 processor is expected to be available in commercial devices by the second quarter 2013.
While the growth rate is expected to decline, increasing dividend and boosting share repurchase will help improve shareholders' value and unlock the value of QCOM's huge cash pile. With QCOM's solid balance sheet and strong cash flow generation ability, QCOM remains a great long-term holding. With the increased dividend, QCOM looks even more attractive for investors seeking balance mixed of income and growth. QCOM remains a solid buy.
Note: Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.
Disclosure: I am long INTC, QCOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.