Qualcomm (QCOM) is expected to release its next earnings report on April 24. It recently announced a cash dividend of $0.35 per common share, over and above the cash dividend payment of $428 million it offered to the shareholders after an impressive performance last quarter. Being a world leader in 3G, 4G and next generation wireless technologies, Qualcomm is expected to outperform its previous quarter results. In this article, I am going to discuss if it will be able to live up to the expectations.
Q1 2013 earnings a big boost
Qualcomm relies on three segments for the bulk of its revenues, which are Qualcomm CDMA Technology (QCT), Qualcomm Technology Licensing (QTL) and Qualcomm Wireless and Internet (QWI). The company has a market value in excess of $100 billion, and yet the growth prospects of the company are quite strong. Its latest results showed that the tech company shipped over 140 million MSM chipsets, up 11% from a year ago. The revenue increased 29% year-on-year and earnings per share (EPS) was above expectations. Qualcomm also posted a profit of $1.91 billion, which is a 36% hike over the previous year. Such promising results were possible due to Qualcomm being a dominant player in the smartphone market having a market share of 48% by revenue. Growth investors please note that the shares of Qualcomm are actually 2% higher than what they were at the beginning of this year. While for income investors, the stock has a moderate payout ratio of 30%.
Driving factors for Qualcomm
Qualcomm is driven by a solid increase in demand for high-end smartphones and tablets. Most phones nowadays are built by Qualcomm chipsets, the Snapdragon processor being the most recent one and already seeing industry-leading growth. There is a rapid transition taking place from 2G to 3G in emerging economies like China and India which is another good news for the semi-conductor company. Quick adoption of long term evolution (LTE) networks in developed countries like the US is also a driving factor. Overall, the future outlook appears to be good for the company and the high valuation is definitely sustainable. The chipmaker's Snapdragon 600 line has gained share at multiple OEMs relative to last year's MSM8960 processor Qualcomm's chips and could go into 70% of Samsung Galaxy S IV units which is a considerable improvement from its S III share.
Tablet Processors - The future of Qualcomm
With the chip already in most of iPhone's top competitors like HTC 8x, Nokia (NOK) Lumina and Samsung Galaxy S IV, Qualcomm needs to move aggressively into the tablet processor market, where Apple (AAPL) and Nvidia (NVDA) are the top players. Having a mere 4% market share, Qualcomm has to quickly tap the opportunity to provide the chipsets for Android powered tablets. It has already started to venture into the market with Google (GOOG) launching its new Nexus 7 tablet in July for just $149, which will be using Qualcomm's Snapdragon processor. However, the market still remains huge and Qualcomm can gain a significant market share.
Qualcomm had recently announced a multi-year engineering and technology agreement with MLB Advanced Media (MLBAM), the interactive media and Internet company of Major League Baseball.
The agreement seeks to establish a collaborative effort to survey, plan and optimize mobile network connectivity for fans at supported MLB ballparks. As part of the agreement, an engineering team will provide in-ballpark assessment and planning for wireless access including Wi-Fi, 3G and 4G connectivity.
I think this collaboration will result in a decent revenue generation for the company by the exchange of data over various networks. Also it will enhance Qualcomm's brand image as the user experience on the game day will be magnified by status updates, play-by-play tweets and fan polling.
In another update, Qualcomm is working with Facebook (FB) to optimize the newly announced Facebook Home and Facebook for Android which will deliver a great Facebook experience while reducing a mobile device's power and improving the data efficiency. This will convert more and more mobile users to shift from Apple to Android which in turn means more users for Qualcomm.
A final word of caution
Qualcomm is a leader in mobile and has presence in all of the high end smartphones starting from the Galaxy S4 to the HTC One. As long as the Android market is growing, Qualcomm's sale of its chipsets will continue to grow at a comparable pace. However, Qualcomm should remain cautious about Intel's (INTC) aggressive approach in the smartphone industry. While Intel still remains behind Qualcomm in integrating the 4G LTE chip with its mobile SoC, it has plans to introduce cutting edge products in late 2013 and 2014. Qualcomm should watch out for this. Its earnings report is not very far away. I see no reason not to buy this stock now until I see signs of any tough competition from Nvidia/Intel. With a relatively low price hovering around $65 and a high dividend payout, this stock is a steal.