Investors Have Started Believing in QUALCOMM, Inc. (QCOM)
QUALCOMM, Inc. (NASDAQ:QCOM) shares witnessed 10.26% uptick in the last week compared to the previous week. That is a clear indication that investors have started to believe in the company and its business models to generate growth in the upcoming years. The company’s stock struggled to hold on and was trading close to multi-year lows as the OEMs of smartphone market remained uncertain. The chipmaker too has taken several steps like cost cutting measures and product diversification. The company was also engaged in significant share buyback program to lift its EPS growth. Any dip in the share price might turn out to be a better entry point.
Mixture Of Initiatives In New Markets
One of the prime concerns among analysts, as well as, investors is that QUALCOMM, Inc. (NASDAQ:QCOM) is struggling for profit, as well as, the top line growth. Street analysts expect the company to likely end up the current year with a revenue drop of 5.5% and 5.6% next year. The chipmaker does not want to lag behind and is keen to the growth paths. For that purpose, the company is planning a mixture of initiatives in the fresh markets like the automotive, drones, realignment of expenses plan, and the significant reduction in outstanding shares. While the new market proposals are a good sign, the company also has the balance sheet to support the company’s share buyback program. It has already initiated the process of reductions in expenditures.
During the third quarter, QUALCOMM, Inc. (NASDAQ:QCOM) has paid dividends of $757 million and bought back $5.4 billion worth of shares, a large number. It might be remembered that the chipmaker has already given its commitment to buybacks about $10 billion worth of shares. On top of it, it plans to return 75% of its free cash flow to its shareholders. Despite spending considerable money of $6.2 billion during the quarter on capital returns, it continued to have a net cash and investments of $25.2 billion indicating the soundness of the balance sheet. The planned $10 billion meant that outstanding shares would get reduced by about 11%.
Costing Reductions And Buybacks To Add to EPS
Morgan Stanley (NYSE:MS) analyst, Kames Faucette, sees there is enough scope to add more than $1 to EPS estimation when QUALCOMM, Inc. (NASDAQ:QCOM) implements its initiatives. That included cost cutting measures, as well as, share buyback program. The analyst expects the chipmaker to generate an EPS of $6.54. The basis of calculation was like this. Commitment to the ongoing capital returns would add a maximum of 3% to its share reduction when earnings drifted to only $4.60 a share. That will offer a significant increase to the EPS estimation of a minimum of 50 cents a share to the fiscal year 2016 based on the share buyback timing.
Similarly, on cost, QUALCOMM, Inc. (NASDAQ:QCOM) sees enough room to achieve cost reductions of nearly $1.4 billion. For the fiscal year ended in September, the company has already saved $600 million. As the annual revenue is likely to be around $25 billion, the company expects to conserve $1.1 billion on full expenses, which excluded $300 million stock-based compensation. These measures would likely yield an addition 69 cents a share based on 1.6 billion outstanding shares.
Losing Dominant Share
The concerns among the analysts on QUALCOMM, Inc. (NASDAQ:QCOM) is that it was losing its dominant market position in the modem chips to the biggest smartphone OEMs. That might have been due to vertical integration needs or the competitiveness. The chipmaker has lost a key client, SAMSUNG ELECT LTD (F) (ADR) (OTCMKTS:SSNLF). The American firm is said to be in the process of possibly winning part of the business back following a positive feedback on its Snapdragon 820 processor.
However, analysts continue to expect that QUALCOMM, Inc. (NASDAQ:QCOM) might end up a maximum of 50% of the business for Apple Inc. (NASDAQ:AAPL)’s iPhone in the current fiscal year.
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