2011 was an amazing year for Qualcomm (NASDAQ:QCOM) as it reported all-time high revenue, earnings and MSM (mobile station modem) shipments (i.e., 483 million) and 3G/4G device shipments for the year. The future looks only better for the company as all signs show that it will continue to excel in what it does. Those wanting to gain healthy and safe exposure to emerging markets can do so by getting some shares of Qualcomm.
In the last seven years, Qualcomm's stock price appreciated by 91%. During the same time period, the company's revenue increased by 240%, its earnings increased by 173% and its cash and equivalent holdings increased by 178%. The company is definitely enjoying the fast growth of the smartphone market. Qualcomm's current P/E ratio of 23 is near the company's all-time lows. The company's average P/E ratio is 37.25 in the last 10 years, 26.15 in the last five years and 28.52 in the last three years. Compared with historical standards, Qualcomm looks undervalued.
Investment for Growth
In the last decade, the company spent $16 billion of its $55 billion cash flow obtained on R&D projects and these projects further fueled the company's growth. The company will continue to see strong growth as the demand for smartphones in emerging markets is expected to remain strong for the foreseeable future. Apart from smartphones and emerging markets, non-handset devices, Advanced Network Technologies and connectivity should be generators of further growth for Qualcomm.
Demand for Smartphones
Between 2011 and 2015, more than 4 billion smartphones are expected to be sold all over the world. This is more than half of world population and signifies a massive opportunity. New smartphones will have faster processors, better connectivity and improved graphics. The improvements in the new smartphones should tempt even those who already own smartphones to replace their phones with newer ones in the following years.
Currently, about three of every four smartphones produced is being shipped to a developed country, but by 2015, half of the smartphones will be shipped to emerging markets. Qualcomm will definitely get a piece of this huge pie as it partners with 50 manufacturers to design hundreds of devices. Qualcomm's mobile device platform Snapdragon can be found in most smartphone models in the world. In emerging countries like China, and India, the increased demand targets not only newer phones, but there is also higher demand on more data. In the next five years, the mobile data traffic is expected to increase by 10-fold and in the next 20 years, it is expected to increase by more than 1000-fold.
The number of laptops and tablets to be sold is expected to reach 600 million by 2015. This will benefit Qualcomm greatly as the company also produces platforms that go into non-handset devices. The next goal is to make laptops and tablets act more like mobile phones so that they become more connected with their environment, more energy efficient and more scalable. Qualcomm will also provide the platform for the Windows phone, a joint venture of Microsoft (NASDAQ:MSFT) and Nokia (NYSE:NOK).
In the future Qualcomm's platforms will also continue to enter into cars and homes, making them more efficient in many ways. In the next decade or so, people will be able to command every appliance at their home including their air conditioner by using their smartphones as remote control. This should also centralize things at homes and increase energy efficiency.
Qualcomm's dividend yield is only 1.3%, however the company has been raising its dividends every year in the last 10 years. Currently the company's quarterly dividend payment is 25 cents per share, up 1000% from 2.5 cents per share in 2003. In the last 10 years, the company returned a total of $16.8 billion to investors in the shape of dividends and stock repurchases.
With a projected annual earnings growth of 15%, strong financials and future growth opportunities, Qualcomm looks like a strong buy. The company is well-positioned both in terms of quantity and quality of outputs to answer the needs and demands of consumers all over the world for many years to come.