Qualcomm: A Winning Play From Apple's Success

| About: Qualcomm Inc. (QCOM)

We all have Apple's (NASDAQ:AAPL) booming success on our radars. It has had stellar performance quarter after quarter, and this last quarter was a blowout. It crushed expectations by selling 37 million iPhones, while easily beating other estimates with the iPad, iPod and Mac products. Recently a report has surfaced from eBay (NASDAQ:EBAY) stating that it has received more iPad 2 turn-ins than previously expected, possibly indicating a large, pent-up demand for the iPad 3, which debuts March 7. Apple has a low PE ratio and is expecting to keep climbing in the months and years to come. With all eyes glued to Apple and its parabolic run into the mid $500 range, I am turning my attention to a different company, a company that is a large provider to Apple and shares in its success in quieter fashion. Yes, I am talking about Qualcomm, (NASDAQ:QCOM).

Investing outright in Apple can and likely will have a high return on investment, but I think Qualcomm is another great way to piggyback off of Apple's success. It only makes sense that if Apple continues to do well and sell millions of its products, that Qualcomm will see success as well. With iPhone sales booming right now and the iPad 3 being revealed March 7, there is no reason Qualcomm should not be seen as a beneficiary from this. The shift from PC to tablet and smartphones is in full effect. With more people than ever ditching their old phones for iPhones, and old PCs for iPads and other tablets, Qualcomm is set up perfectly to supply chips for all of these devices. Once Apple gets its products into China, and is able to tap foreign markets, Qualcomm will also see a huge increase in revenue. Below are one-year charts of Apple and Qualcomm.

Above: Qualcomm

Above: Apple

Qualcomm is currently in prime position to continue its dominant success. With other chip suppliers, such as Broadcom (BRCM) also contributing to Apple and other handheld devices, it allows Qualcomm to prosper even more. Qualcomm collects royalties from Broadcom products, as well as many other companies in the tech space. According to a report, Qualcomm collected royalties on approximately 40% of the handsets sold in 2011. That figure is expected to increase to 65% over the course of the next four years. Along with the royalties Qualcomm is collecting, they also have a solid grasp on future patents. By owning so many patents, it allows them to not only be the first to new technology, but finding licensees for older and current patents. By having a licensing agreement, it allows Qualcomm to continue to collect royalty checks from other tech companies, while still supplying its own chips. With the continued success from other suppliers, such as Broadcom, it will allow future success for Qualcomm as well.

In fact, among the strong Apple and other smartphone sales currently fueling Qualcomm, there are many other positive things happening. On March 6, 2012, Qualcomm hiked the quarterly dividend up by 16%, to $0.25 per share. It currently is yielding 1.6%, which does not by any means make it a high-yielding dividend play, but nonetheless gives investors yet another reason to hold this stock while waiting for it go higher. Along with a higher dividend announcement, Qualcomm announced a $4 billion buyback program. It has had a $3 billion buyback program in place, with around $950 million left, but will replace that and the remaining amount with the new buyback plan. It says a lot when a company is buying back its own shares, not only does it increase earnings per share, but shows it has confidence going forward for share prices to rise. According to Yahoo Finance, of the 43 analysts covering Qualcomm, 35 have it rated a strong buy or buy, while only one analyst has a sell or underperform rating, with 7 analysts issuing a hold rating.

With Qualcomm just a few dollars away from its 52-week high of $63.81, I would wait for a slightly larger pullback to begin accumulating shares. Any dip below $60 is worth buying in current market conditions. Also, it may be important to note that Apple has had a substantial run-up as of late, and when it begins to fall back to earth, it may bring some of the semiconductor field, particularly its suppliers, down as well.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in QCOM, BRCM over the next 72 hours.