Qualcomm: Why The Success Story Just Begins

Apr. 22, 2019 3:34 AM ETQUALCOMM Incorporated (QCOM)AAPL, INTC, NXPI149 Comments
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Summary

  • Founded in 1985 in San Diego, California, Qualcomm is the world's leading chip designer for wireless technologies including 3G, 4G and 5G.
  • Now that the license dispute with Apple has been settled, Qualcomm can  focus almost entirely on its operating business.
  • The 5G generation in mobile communications is currently in the roll-out phase, so that it can be assumed that profits and cash flows will increase in the foreseeable future.
  • Qualcomm has a favourable valuation compared to the peer group and is fundamentally undervalued despite the share price rally due to the Apple settlement.
  • In addition, there is a pending share buyback program of around $7.8 billion and the dividend of currently over 3%, which also speak for an attractive shareholder value in the future.

The key to making money in stocks is not to get scared out of them. – Peter Lynch

Founded in 1985 in San Diego, California, Qualcomm (NASDAQ:QCOM) is the world's leading chip designer for wireless technologies, including 3G and 4G/LTE. The company also has ambitions to be the leader in 5G.

The emphasis here is on designer, because unlike traditional chip manufacturers such as Intel (INTC) and Samsung (OTCPK:SSNLF) (OTCPK:SSNNF), Qualcomm does not (yet) have its own manufacturing facilities and has its chips produced by contract manufacturers such as Taiwan Semiconductors (TSM), or provides licenses to produce and use its intellectual property in smartphones, tablets and smartwatches, for example (so-called "fabless production model").

As a sign of its technology leadership, companies that manufacture or use chips in their devices in the above-mentioned mobile communications areas are said to be required to obtain a patent license from Qualcomm. So it's no wonder that Qualcomm's customers include global technology leaders and smartphone manufacturers such as Apple (AAPL), Samsung, Huawei, LG, Oppo, Sony (SNE) and Xiaomi (OTCPK:XIACF) (OTCPK:XIACY). Qualcomm speaks in its Annual Report of over 210 companies using Qualcomm technologies in their products and paying royalties to Qualcomm.

In addition, Qualcomm's Snapdragon LTE modem is widely recognized as the most powerful chip in the LTE market. An attempt by Apple in iPhone 7 production to replace Qualcomm chips with Intel chips to solve its dependency on Qualcomm resulted in performance problems for many iPhones. To avoid this performance problem in its LTE-enabled Apple Watch Series 3, Apple fully relied on Qualcomm's Snapdragon chips.

According to a report published last week by the Washington Post, Apple’s hardware executives used phrases like "the best" to describe Qualcomm’s engineering. Another Apple memo characterizes Qualcomm as having a "unique patent share."

Qualcomm's business consists of the

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Real Financial Dynamics - Investing In Growth In Every Market Phase. Banker, Investor, Investment Advisor, Wealth Manager, Finance Blogger from Germany. Website | Instagram | LinkedIn | Güner Soysal

Disclosure: I am/we are long QCOM, AAPL. 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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