Qualcomm Makes Bid For Entry-Level Smartphone Market

Oct.25.12 | About: Qualcomm Inc. (QCOM)

In an increasingly competitive computer processing market, Qualcomm (NASDAQ:QCOM), the U.S. based chip manufacturer, seems to have its hand in all things digital. The global technology giant that deals in wireless telecommunications products and services does not seem to be affected much by the slowdown in the PC market. With the smartphone market trending ever upward, Qualcomm has continued its dominance in that arena, garnering a respectable 48 percent revenue share this past year. The only fly in Qualcomm's ointment appears to be from challengers, such as Broadcom's (BRCM) progress in low-end Android handsets. As a result, Qualcomm's revenue share has fallen by an estimated three percent this year, but still not enough to cause great concern. In an effort to compensate for the lost revenue and garner new market share, Qualcomm announced it is lowering the price of several of its chipsets. The company has made this unprecedented move in an effort to offset its loss in revenue by courting the lower-end smartphone device group. Qualcomm is also finding that it must compete with smaller chipmakers that are benefitting from growth in emerging markets such as India and Brazil.

A major part of Qualcomm's success of late is its production of the LTE compatible Snapdragon quad-core processor. The company has a lock on the high-end smartphone market. Now it is targeting entry-level merchandise. As a result, Qaulcomm has placed itself in the forefront of bringing quad-core chipsets to entry level smartphones. However, the competition is edging ever closer and it goes by the name of Nvidia (NASDAQ:NVDA). The smaller company recently dropped a bombshell on processor competitors Qualcomm and Intel (NASDAQ:INTC) by releasing its Tegra 3 quad-core chip. The chip is featured in several new devices such as Google's (NASDAQ:GOOG) Nexus 7, Microsoft's (NASDAQ:MSFT) new Windows RT Surface tablet, and the first quad-core smartphone, the ARROWS X by Fujitsu. Qaulcomm immediately threw down the gauntlet, denouncing the chip as being inferior to its Snapdragon S4 Pro. In order to defend against what will be a certain fight for entry-level devices, the company has announced a lower cost edition of the Snapdragon S4 Pro quad-core processor. The chipsets are called MSM8225Q and MSM8625Q respectively. Falling under the Snapdragon S4 Play range, the chipsets will make it possible for entry-level phones to have enhanced graphic capabilities and allow better and cheaper phones to be developed. Qualcomm is also hoping to pick up the portion of the market that Texas Instruments (NASDAQ: TXN) carried. In a move that has surprised market experts, Texas Instruments is phasing out of the smartphone processing business, choosing instead to concentrate on embedded systems. That is one less major competitor for Qaulcomm to worry about in a smartphone chip market that is becoming more congested by the day.

Qualcomm is an attractive prospect right now. It has a particularly strong balance sheet and has cash on hand of about $13.5 billion with debt of only $1.4 billion. It is making sound business decisions with its shift into the lower-end handset market and the desire to focus on emerging markets. The company is bringing China into the mix by effectively targeting mid-tier phones that are used in that country with its production of the Snapdragon S4 Plus MSM8930. The dual-core chip supports all China operators with UMTS, CDMA, and TD-SCDMA. It is the first single chip solution with an integrated LTE modem. Last week Qualcomm announced a quarterly cash dividend rate of $0.25 per common share. Use of wireless devices has increased dramatically in the past five years. Experts expect the trend to continue to drift upward at exponentially higher rates with time. Analysts are moderately bullish on the stock as of this week. Shares were selling at $58.75 at the close of Friday's market. Although the value has wobbled a bit lately, the price is alluring and as a long term investment it is a deal that is hard to pass up. For more than 25 years, Qualcomm's innovations have driven the evolution of wireless communications and the digital world. As of my view point, investing in this technology giant is will be a wise move for the investors.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.