By Neal Rau
Qualcomm, Inc. (QCOM) shares have underperformed the overall market this year. The company released better-than expected C3Q13 results but soft C4Q13 guidance. Qualcomm saw a mix shift toward lower-end phones, which is not favorable for a company that relies on licensing fees for the majority of its revenue. Should investors buy shares on the pullback after earnings?
Qualcomm's licensing business should benefit from ongoing global 4G LTE rollouts, including China Mobile's upcoming 4G launch. The company's licensing business brings in double the operating profit of the company's chip business. However, in the future, less expensive phones could hurt Qualcomm's earnings because royalties are based on fixed percentages of selling prices. Of course, Verizon Communications Inc. (VZ) and AT&T Inc. (T) are also pushing for LTE, however other chipmakers will be developing their own LTE chips, which adds to competition.
Qualcomm announced that its Board of Directors approved a new $5.0 billion stock repurchase program. This replaces the prior $5.0 billion stock repurchase program announced on March 5, 2013, at which time the company also announced a 40% increase in the quarterly cash dividend. Since July 24, 2013, Qualcomm repurchased approximately 40.1 million shares of common stock for $2.7 billion.
There have been over 131,000 shares sold by insiders in the last month, bringing the yearly total to 3,229,100 shares sold, without one single insider buy.
Former Qualcomm Chief Marketing Officer, Anand Chandrasekher was moved to a new position after making critical and negative comments about the Apple Inc. (AAPL) 64-bit processor. He said the he considers the new chip a marketing gimmick, and that consumers cannot get any benefit from that. The company retracted his statements soon after. Apple is already working on its 2G 64-bit A8 processor and eventually Samsung will be next to move its ARM processors to 64-bit.
More damaging news perhaps was when a jury in the U.S. District Court for the Middle District of Florida awarded ParkerVision past damages of $173 million for Qualcomm's direct and indirect infringement of ParkerVision patents. The jury also found that ParkerVision did not prove its claims of willfulness, which would have allowed the judge to enhance the damages awarded by the jury. The judge still has to make determinations on matters of law, including ParkerVision's request for an injunction against Qualcomm. It is unknown at this time when the judge will rule on these matters. Qualcomm took a hit of about $0.10 per share as a result of the ruling.
Qualcomm Inc. sold its entire stake in a wireless broadband business in India to partner Bharti Airtel Ltd. for an undisclosed amount last month, which it acquired through a government auction in 2010. It paid about $1 billion for the spectrum and related licenses.
The company does not have many compelling fundamental reasons to buy shares at current levels. Investors need to be aware of price because that is what makes us money, and based on the Stock Traders Daily QCOM real-time trading report, the stock is moving closer to long-term support, but isn't there yet. If QCOM continues to move lower, and tests long-term support, we would be buyers near support. If support holds, we would expect a move higher and an eventual test of resistance. We would only be buyers near support, and it is not there yet.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: By Neal Rau for Stock Traders Daily and neither receives compensation from the publicly traded companies listed herein for writing this article.