Qualcomm (NASDAQ:QCOM) has been doing well since the start of the year - the stock was up about 11% in the last twelve months. However, the stock started losing value after second quarter earnings, and currently QCOM is up about 1% year-to-date. The company reported improved financials in the second quarter and increased its revenues by around 9% during the period. However, Chinese regulatory issues deeply affected licensing revenues for the company. Licensing revenues represent a major portion of company revenues and have been threatened by the ongoing Chinese investigations of the company's policies. However, the company has raised its full-year guidance and is anticipating strong future growth, which creates an excellent buying opportunity for long-term investors.
Pinpointing the Weaknesses and Strengths
Royalties and licensing revenue represents a major portion of Qualcomm's earnings, which has been shrinking due to ongoing Chinese antitrust investigations and market saturation. The company is one of several multinational companies in China, which are under pressure as regulators have increased enforcement regarding patent licensing and pricing of Smartphone chips. Moreover, the recent fall in stock price is mainly due to the company's reliability on Chinese sales and licensing revenues, which have slumped over the last few quarters. The company also reported considerable reduction in sales and licensing revenues in China which deeply affected the full-year guidance of the company. However, the Chinese investigations are nearly concluded and the results will be announced soon. Qualcomm also announced that its venture investment wing had committed to invest as much as $150 million in Chinese start-up companies which focus on developing mobile technologies.
Qualcomm has managed to report better than expected performance in its semiconductor revenues and raised its full-year earnings per share for the segment. The company reported a year-over-year increase of around 31% in chip shipments which translated into increased revenues of $6.81 billion during the second quarter. This increase in the chipsets segment or QCT business segment is mainly due to the increased sales of Qualcomm's Wi-Fi, RF360 and multi-mode 3G LTE product line across the world. Moreover, the company anticipates further growth in these segments by the end of this year. The Snapdragon processor series proved to be a massive win for Qualcomm, as it leads the mobile wireless chipset market with world leading smartphone manufacturing clients. The Snapdragon 805 processor has the latest advanced technological updates and has yielded impressive results so far. Moreover, the latest version of the renowned Samsung Galaxy Note Series, Samsung Galaxy Note 4 also has the latest Snapdragon 805 processor.
The automakers are anxious to make their products unique in the market. As discussed in our previous article, Qualcomm is setting new standards in the automotive chips industry, which according to research conducted by IHS, has the potential to grow to $27.9 billion over the next few years. The company has planned to penetrate the automotive chips market by introducing internet hotspot connection options in the latest product line of automakers.
Qualcomm, once again, made an important move by introducing battery charging technology in mobile locations, irrespective of charging port compatibility. Today, in the era of latest smartphones devices, consumers are complaining about the excessive battery drainage problem due to their heavy device usage. Smartphones, being the only source of mobile entertainment these days, have led consumers toward excessive usage. Qualcomm is about to bring a new technology, WiPower, which will turn tabletops, car headrests and bookshelves into mobile wireless charging docks. The company plans to eliminate the battery anxiety by introducing this technology and has built a portfolio of patents which ensures the security of its intellectual property and has the potential to grow its revenues.
Qualcomm spent seven years researching and developing a system using magnetic resonance technology, which can wirelessly charge multiple devices including smartphones, tablets and the latest wearable gadgets, at once. Further, when using the technology on a tabletop, the signal can reach through objects like a book or magazine, so that the gadgets do not have to be intact with the power supply. Moreover, the company plans to start the commercial sale of WiPower technology by the fourth quarter of this year or by early next year. However, the growth prospects of this technology are very strong as this technology will help solve a key issue. The technology also has lucrative prospects in the automotive industry, which will allow carmakers to place charging docks in the back of the headrest, armrests or in the coin compartment.
Qualcomm has become an interesting stock - the company undoubtedly has a strong position in the mobile chips market. However, the mobile chips market looks to be slowing and it cannot give Qualcomm perpetual growth. As a result, the stock has been behaving more like a value stock over the last few months. Furthermore, the situation in China has also impacted the stock price movement and we might see some positive movement if the results of the investigation are not too critical. Other than that, the automotive market and WiPower are two more segments that can bring growth to company revenues. Long-term investors of the company should be patient as we believe there are many growth opportunities for Qualcomm, and the Chinese situation might create a buying opportunity.
Additional Disclosure: This article is for educational purposes only and it should not be taken as an investment recommendation. Investing in stock markets involves a number of risks and readers/investors are encouraged to do their own due diligence and familiarize themselves with the risks involved.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.