QUALCOMM, Inc. (QCOM) Has Made a Comeback After It Was Written Off

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QUALCOMM, Inc. (NASDAQ:QCOM) suffered a difficult year in 2015. The company faced all sorts of negative sentiments which dragged down the stock price. That was primarily because of the loss of some key clients like SAMSUNG ELECT LTD(F) (ADR) (OTCMKTS:SSNLF) and Apple Inc. (NASDAQ:AAPL) as they started making their own chips. As a result, the chipmaker was forced to cut down its revenue guidance by $800 million, about a year-ago. That also made several investors and analysts to write off the stock, at least to some extent if not completely. However, things have changed now after a year of struggle or repositioning itself to face the changed situation. The fact is that it has not lost hopes and is coming up with fresh ideas to win back the clients and has focused on new trends to be back with a bang.

Winning Back Clients

One of the biggest factors to look at QUALCOMM, Inc. (NASDAQ:QCOM) is its capability to win back the clients. For instance, SAMSUNG ELECT LTD(F) (ADR) (OTCMKTS:SSNLF) has decided to use the chipmaker’s Snapdragon 820 in its upcoming Galaxy S7 device though there is a need of some clarity whether it would serve all the regions. However, it was assured that the Galaxy S7 models to be sold in North America and China will have the Snapdragon 820 processor. That clearly showed the reversal of fortunes as in the previous flagship Galaxy S6, the company’s processor was dumped by the Korean firm. The latest chip offers the highest performance mobile processor to the Korean firm’s smartphone. Another factor is that it would be offering the chipmaker the largest margin, at least, in the near-term.

The latest development should quell investors’ fears about QUALCOMM, Inc. (NASDAQ:QCOM) at the first instance. It would not be an easy task to come back to the scheme of things after being dumped, probably in less than a year. One more factor to be noticed is that the company has practically won each premium brand of smartphone with Android OS during the most recent Mobile World Congress. Also, as a result of the South Korean firm turning back to the American firm for its chip requirements, there is also a possibility that others, especially in the higher-end of the smartphone vendors, would also follow the same principle of using the Snapdragon 820 chip.

Strength and Weakness

Like any other company, QUALCOMM, Inc. (NASDAQ:QCOM) too has strengths and weaknesses. One of its greatest strengths is that its app processors, as well as, wireless modems have earned the best in breed class reputation. As a result, it was able to grab big design wins. The second strength is that it merges even with its ARM-based processors, modems, and Adreno GPUs into a single SoCs. Therefore, the chip making business gets widened against the challenges. Finally, the chip helps the smartphone makers of 3G or 4G to reduce their wholesale price by a maximum of $5 a piece throughout the world.

As far as the weaknesses of QUALCOMM, Inc. (NASDAQ:QCOM) is concerned, it has been losing its market share to companies like Taiwan-based MediaTek. That was because the latter was selling its models and app processors at a cheaper price to help small smartphone manufacturers. The biggest headache for it comes from big original equipment makers like China-based Huawei and SAMSUNG ELECT LTD(F) (ADR) (OTCMKTS:SSNLF) as they have also started to develop their own chips to boost their margins. Another weakness is that its licensing fees were termed as too high by big companies. As a result, three regulators from China, South Korea, and Taiwan took up the issue and the company agreed to lower them. On top of that, several China-based OEMs were not reporting the shipments correctly to avoid paying the licensing fees. That forced the American firm to pursue fresh licensing deals.

VR – The Game Changer

The next big thing that is waiting to explode in technology world is the virtual reality. QUALCOMM, Inc. (NASDAQ:QCOM) has positioned itself to take advantage of the emerging VR. For the chipmaker, it could be a game changer. The growth opportunity in the VR meant that there is opportunity to make a profit from the segment. Of course, there would be competition in the VR space. However, the segment is next door market play for the American chipmaker with the standalone VR headsets. Also, its presence could boost the demand for smartphone to be powered by its processors like the Samsung Gear VR or any other similar systems.

Currently, QUALCOMM, Inc. (NASDAQ:QCOM) is focused on several premium smartphones for its Snapdragon 820. In the upcoming period, it would not be a surprise that VR is going to be a selling point to boost the smartphone sales. The adoption of 4G could also support the cause of promoting the VR. Also, the company provided SDK, offering the developers a tool set to develop the capable hardware of the 820 to take advantage and establish VR experiences. The Chipmaker claimed that its process could offer support to a resolution of 1600 x 1800 pixels at a frame pace of 90 Hz, which is twice that of Rift or Vive. That should satisfy those who are worried about the pixels quality.

Valuation

Currently, QUALCOMM, Inc. (NASDAQ:QCOM) shares’ price earnings ratio is 17.4 times compared to the industry average of 21.0 times. If forward earnings are taken into consideration, the PE ratio is only 10.96 times, which means there is enough space to grow. The company has also produced higher operating margin for the trailing twelve-month period at 22.5% and net margin of 20.0% compared to the industry average of 14.3% and 9.9% respectively. However, the major worry is that its three-year average net income witnessed a drop of 4.8% while the industry average is 15.3%.

Conclusion

Until now, QUALCOMM, Inc. (NASDAQ:QCOM) has yet to realize the gains of winning back the Samsung order. Similarly, it has to realize the success in the VR segment. Therefore, once its results starts reflecting them, the shares of the company could trade completely in a different direction. It is worth watching to invest.

Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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