Most people who buy technology stocks don't actually understand more than what they hear on CNBC about technology. Ask your typical retail "semiconductor investor" what chip is in his or her smartphone, and the answer will be ARM (ARMH). While this is philosophically true, as the majority of smartphone processors today are compatible with the ARM instruction set, the answer would be strictly false. If you're living in the US, the odds are your smartphone doesn't have an ARM-designed processor in it. Surprise! Apple (AAPL) designs its own processors (and uses graphics from Imagination Technologies) and the rest of the LTE-enabled market uses Qualcomm (QCOM) designed chips.
A lot of people - even a few professional investors that I've talked to - don't actually fully grasp this distinction. It's a tough one, but let me try to explain it. A microprocessor has its own "language" that it understands. This is what code written in C/C++, Java, etc. are ultimately translated into: "machine language". This "language" specifies what commands the processor understands, how it addresses memory, how many registers it has, and so on. It's a specification. On top of that specification, you design the actual micro-architecture. This micro-architecture is usually targeted at a particular performance-per-watt level for the workload that it's being aimed at.
That's what Qualcomm does; it designs its own micro-architecture that is software-compatible with the ARM instruction set, and right now Qualcomm's chips are the best out there today for the majority of smartphone workloads. Qualcomm is quite literally the Intel (INTC) of mobile, as its processors power the majority of high end Android phones today.
Here are just a couple of reasons you should buy Qualcomm ahead of its earnings report on 4/24:
- Leader In Mobile - Qualcomm owns all of the high end phone designs from the Galaxy S IV, to the HTC One, to everything in between. As long as the Android smartphone market is growing, Qualcomm's chip sales will continue to grow as well thanks to leading edge, readily available technology.
- Already Guided The Year Up: At the company's last earnings report, the company guided the year up by ~$400M in yearly revenues. I wouldn't be surprised if the company actually pushes the range up again at this upcoming earnings report.
- Dividend Raise: The company bumped its dividend up fron $1/share annually to $1.40/share annually. As the firm's semiconductor business continues to ramp in profitability, I expect the company will start to pay more of its patent licensing royalties out as dividends over time
- Very Little 2013 Market Share Loss Risk: While 2014 brings competition in LTE and perhaps in apps processor performance/watt, 2013 goes to Qualcomm.
I see no reason to not own the stock ahead of its earnings report. This company is riding a secular growth wave and is a complete winner at what it does. Until you see signs of competition (particularly from Intel/Nvidia (NVDA)), this stock is a no-brainer buy.
Additional disclosure: I may purchase QCOM shares, sell QCOM put contracts, enter into a bull call spread on QCOM, or any other combination of bullish moves at any time. I am also short ARMH