Should You Buy QUALCOMM, Inc. (QCOM) at Current Levels?

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QUALCOMM, Inc. (NASDAQ:QCOM) has faced plenty of problems over the past year which raises concerns over the future. A recent bounce back has many investors rethinking their positions on the stock as the chip giant continues to diversify away from mobile chips and into high-growth businesses.

Uncertainty in mobile chips business continues to be a hangover. However, the stock remains a valuable proposition as it continues to deliver maximum shareholder returns through buybacks and dividend.

The stock has rebounded by as much as 21% since February and trades strongly off its $42 a share 52-week low. There may be some value worth unlocking in the stock given that it is still trading way off its 52-week high of $77.50 a share.

Competition Threat

QUALCOMM, Inc. (NASDAQ:QCOM)’s chip making business, which generates a majority of its revenue, has been on a downturn. The company has lost market share to lower-priced rivals like Taiwanese chipmaker Media Tek. Intel Corporation (NASDAQ:INTC), which until now has remained sidelined on baseband modems, is now making a push to steal away some business as well.

There are reports that Apple Inc. (NASDAQ:AAPL) plans to collaborate with Intel as the second source of chips for its upcoming flagship smartphone iPhone 7. The potential market share loss for Qualcomm, in this case, remains low according to analysts. However, it raises serious concerns about the impact it could have in the long run.

Some analysts expect QUALCOMM, Inc. (NASDAQ:QCOM) to take a mere $0.10 hit on Apple inking a deal with Intel. Given that the iPhone maker does not account for all global phone volume sales, the chipmaker should be able to offset any potential market share loss to Intel by signing deals with other companies.

Samsung Back in Business

Samsung and Xiaomi are already emerging as reliable trading partners that could help Qualcomm offset any loss of business on Apple. Excellent sales for Galaxy 7 should go a long way in compensating for any reduction in modem sales for iPhone 7.

The rivalry between Samsung and Xiaomi is also good for business given that the two companies are looking to dominate different marketplaces. The Chinese sensation plans to dominate the $400 Android phone market while the Korean company looks to dominate the premium market. As the two ramp up efforts to ship more units, Qualcomm should be able to receive more orders for its modem chips.

Even though smartphone sales are slowing, a 7% growth is still expected. Any growth of the sought should result in Qualcomm receiving more orders for its Snapdragon 820 processor. The processor has been a big hit having offset weakness on the sale of Snapdragon 810.

Winning back Samsung as a trading partner, is good for business, as the same will go a long way in improving the average selling prices of the processors.

Addressable Market

Concerns over a potential loss of modem share at Apple has gone a long way to hurt QUALCOMM, Inc. (NASDAQ:QCOM)’s sentiments on the Street. That is despite the fact that the company generates a good chunk of its profits from its licensing business.

Qualcomm’s owns a good chunk of mobile networking technology patents that ensures it will always have a stable revenue stream. Expansion into other areas of growth such as data centers, IoT, virtual reality, and even drones should shield the company from weaknesses in other sectors.

Bottom Line

QUALCOMM, Inc. (NASDAQ:QCOM) with its hearty dividend and licensing business should be a no brainer for bargain hunters. Given that Snapdragon 820 continues to evoke demand for OEM’s should be another reason to get involved in the stock. The same should go a long way in bolstering the firm’s revenues and earnings, which should help, push the stock higher in the market.

The tech giant is also just starting on virtual reality with its Snapdragon 820 processor. Any momentum on the spectacle should have a direct impact on QUALCOMM, Inc. (NASDAQ:QCOM) stock. Compared to other tech sector peers, the stock is relatively cheap.

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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