Wall Street takes a closer look at Qualcomm By Investing.com


© Reuters

Explore Wall Street’s expertise in this ProResearch article, which will be available exclusively InvestingPro subscribers soon. Enhance your investment strategy with ProPicks, our newest product featuring strategies that have outperformed the S&P 500 by up to 700%. This new year, enjoy up to 50% off plus 10% off 2-year subscription with code research23, reserved for the first 500 fast subscribers. To ensure constant access to valuable content like this, step up your investing game with InvestingPro.

In the busy semiconductor industry, QUALCOMM Inc. stands out. (NASDAQ:QCOM) as a key player that is particularly known for its prowess in wireless technology and its strong position in the smartphone market. With the industry at a critical juncture characterized by rapid technological advancements and changing market dynamics, Qualcomm’s (NASDAQ: ) strategic moves and financial health are under intense scrutiny. This analysis delves into the company’s performance, product segments, competitive landscape, market trends, regulatory environment and management strategies to provide potential investors with a comprehensive understanding of Qualcomm’s position and prospects.

Company profile and market position

Qualcomm’s reputation in the digital wireless communications equipment sector is formidable due to its intellectual property in CDMA and orthogonal frequency multiplexing access technologies. The company’s CDMA-based ICs are essential for a variety of applications, including workforce tracking, asset management and wireless content enablement. Qualcomm’s market position is further strengthened by its Snapdragon 5G Modem-RF systems, which are an integral part of current and upcoming smartphone launches.

Strategic partnerships and agreements

A significant feather in Qualcomm’s cap is the extension of its supply contract with technology giant Apple Inc. (NASDAQ: ) which now runs through fiscal year 27. This deal isn’t just about the numbers; it is a testament to Qualcomm’s technological leadership and the strategic importance of its products. Analysts see the expanded partnership as a bridge to Qualcomm’s more diversified revenue profile, particularly in the automotive sector, with the potential to generate sustainable profits and robust annual cash flow.

Financial health and stock performance

Financial estimates paint a positive picture, with adjusted diluted EPS showing a steady rise from an actual of $12.53 to an estimated $10.93 in FY25. Qualcomm shares have shown resilience, rising 4% year-to-date, although they are down 11% over the past twelve months. According to analysts, the company is trading at a multiple below its five-year average and appears to be undervalued relative to its earnings power.

Product segments and diversification

In addition to mobile phones, Qualcomm is making inroads into the automotive and computer markets. The company’s long-term option is excellent, with a secure design winning in auto and potential in computers. A key area of ​​focus is Qualcomm’s exclusivity deal with Microsoft (NASDAQ: exclusivity.

Competitive environment and market trends

The competitive landscape for Qualcomm is tough, with the handset market heading into a cyclical downturn after a long period of inventory corrections. Qualcomm’s strength lies in its long-term deals and diversification efforts, which provide a cushion against intense competition as 5G matures. But the company must deal with the risks of a permanent loss of Android stock to Apple and pressure to use domestic suppliers in China.

Regulatory environment and external factors

Qualcomm’s reliance on third-party foundries brings risks, such as potential production cuts or rising costs. In addition, the company faces challenges in enforcing the underlying patent licenses. The economic slowdown, which is affecting consumer and corporate spending on smartphone upgrades, also poses a threat to Qualcomm’s revenue streams.

Bear case

Is Qualcomm’s mobile phone revenue at risk?

The mobile phone segment, while a major source of revenue for Qualcomm, faces long-term risks from increased competition and the maturity of 5G technology. As 5G technology expands, the entry of new players could reduce Qualcomm’s market share and affect its profitability and unit shipments. Additionally, a shift in market preference toward Apple devices could shrink Qualcomm’s overall addressable market, impacting its long-term revenue potential in mobile phones.

Can Qualcomm Sustain Growth Amid Economic Headwinds?

Qualcomm’s reliance on the broader smartphone market, which is currently under pressure, raises concerns about its ability to sustain growth. An economic downturn could lead to reduced consumer and corporate spending on smartphone upgrades, which would directly affect Qualcomm’s bottom line. In addition, improvements in operating expenses may be limited because sustaining Apple’s business requires significant resources, potentially limiting profitability.

Bull Case

How will Qualcomm’s deal with Apple affect its future?

The extended supply agreement with Apple is a significant win for Qualcomm, ensuring a stable revenue stream and strengthening its position in the iPhone ecosystem until at least 2026. The deal is expected to be a significant contributor to Qualcomm’s earnings, with an estimated $1.50 added to EPS from the Apple QCT store itself. The deal also underscores Qualcomm’s technological prowess and its ability to secure long-term commitments from industry giants.

Does Qualcomm have growth potential beyond smartphones?

Qualcomm’s diversification strategy, particularly its forays into the automotive and PC sectors, is allowing the company to grow beyond its traditional smartphone market. The company’s expertise in modem development, especially amid evolving 5G standards, gives it a competitive edge. With secure design wins in the automotive industry and potential in computing, Qualcomm has several avenues to expand revenue and accelerate EPS again.

SWOT analysis

Strengths:

– Strong supply contract with Apple extended to FY27.

– Technological leadership in CDMA and 5G Modem-RF systems.

– Diversification into the automotive and PC sectors.

Weaknesses:

– Exposure to risks arising from the maturation of 5G technology.

– Dependence of production on third party foundries.

– Economic sensitivity of the smartphone market.

Opportunities:

– Potential for significant free cash flow generation.

– Optionality from long-term agreements and diversification efforts.

– Expansion into new markets following smartphone exclusivity agreements.

threats:

– Increased competition in the mobile phone market.

– Apple’s internal modem development effort.

– Regulatory and geopolitical tensions affecting market dynamics.

Objectives of analysts

– Wolfe Research: Overcome; $145 (September 18, 2023).

– Barclays Capital Inc.: Overweight; $140 (September 12, 2023).

– Rosenblatt Securities Inc.: $145 (September 11, 2023).

– Evercore ISI: In Line; $140 (September 11, 2023).

– Deutsche Bank Securities Inc.: Hold; $120 (September 11, 2023).

The time frame for this analysis is from September to October 2023.

InvestingPro statistics

To investors who follow QUALCOMM Inc. (NASDAQ:QCOM), InvestingPro’s real-time metrics and tips offer a deeper dive into a company’s financial health and stock performance. With a robust market cap of $160.12B and a trailing twelve month P/E ratio adjusted to 19.76 from 2023Q4, QUALCOMM presents a remarkable investment case to consider. The company’s revenue has been on the decline, down 18.96% over the same period, which may reflect the competitive pressures and market dynamics discussed in the article. Despite this, the company’s gross profit margin remains strong at 55.7%, underscoring its ability to maintain profitability.

InvestingPro Tips highlights QUALCOMM’s strong return on assets of 14.46% for trailing twelve months to 2023Q4, which indicates effective asset management to generate profit. Additionally, the company’s commitment to shareholder value is evident in its dividend history, where it has increased its dividend for 21 consecutive years. On the other hand, the Relative Strength Index (RSI) suggests that the stock is in overbought territory, which could signal the need for caution among potential investors.

As part of InvestingPro+, subscribers have access to even more information, with a total of 17 InvestingPro tips available for QUALCOMM. These additional tips provide comprehensive insight into company financial nuances and market behavior that could be key in shaping investment strategies. For investors looking to take advantage of these insights, InvestingPro subscriptions are now up to 60% off in a special Cyber ​​Monday deal. Use a coupon code to sweeten the deal even further research23 get an additional 10% discount for 2 years InvestingPro+ subscription.

This article was created with AI support and reviewed by an editor. See our T&C for more information.