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A Temporarily Out-Of-Favor Chipmaker Presenting An Attractive Opportunity


  • Why Qualcomm's R&D spent is outsized.
  • This expense is both optional and underestimated by Wall Street.
  • Qualcomm trades at a discount to its historical multiple, while its revenue is of a type that I rate above any other.

You have to give credit where it's due. It was fellow contributor Chris Lau who put Qualcomm (NASDAQ:QCOM) back on my radar early in 2017. Qualcomm's share price has collapsed due to a lawsuit from Apple (AAPL), attention from regulators and the absence of an exciting growth product. Meanwhile, there are important positives, as it gets most of its revenue from licensing royalties, which is a terrific type of revenue. The company doesn't need to do much R&D to sustain its business, but it is investing heavily into R&D. This was originally a founder-operated business and is still chaired by the son of the founder.

R&D is optional

Qualcomm gets ¾ of its revenue from licensing royalties. Every maker of 3G and 4G connected devices out there keeps shipping monies to California. Qualcomm owns this evergreen IP, and it doesn't need to come up with a better version every year like so many of the box builders out there do. Its customers need to build better products and are on a never-stopping treadmill of having to bring out the next best thing. The company just holds its hand up regardless of whether its architecture gets put into the Galaxy 6 or iPhone 8.

R&D underestimated

Qualcomm spends 22% of revenue on R&D. That's in line with the percentage of revenues spent by chip designers like AMD, Nvidia (NVDA), and Intel (INTC). The company is in an enviable position where it could shut down most of its R&D department and its licensing revenue wouldn't be at risk for many years. As a percentage of product revenue, which is on a clock as well, its R&D spent is much higher. R&D investments are often underappreciated by Wall Street, and in my experience, more so in family-run companies and companies that excel at R&D. Which gets

This article was written by

Bram de Haas profile picture
Special-Situation And Event-Driven Ideas To Improve Risk Adjusted Returns
15 years of investing and I feel like a rookie in his first year at the academy. My roots are in the value school but over time I've learned to respect different approaches. I'm interested in what quants do, options traders do, and even what WallStreetBets is doing (keep your friends close and...)

I gravitate towards special-situations. That means situations around companies or the market where the price can move in a certain direction based on a specific event or ongoing event. This eclectic and creative style of investing seems to suit my personality and interests most closely.

Since 2020 I host a podcast/videocast where I discuss (special-situation/event-driven) market events and investment ideas with top analysts, portfolio managers, hedge fund managers, experts, and other investment professionals. I highly recommend it (pick episodes around topics that interest you) for the amazing guests that come on with regularity.

I've been writing for Seeking Alpha since 2013 after playing p0ker professionally. In 2018 I founded Starshot Capital B.V. A Dutch AIF manager. Follow me on Twitter @Bramdehaas or email me Dehaas.Bram at Gmail

Analyst’s Disclosure: I/we 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.

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