Qualcomm: Recent Pullback Means Buying Opportunity
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Shares of Qualcomm (NASDAQ: QCOM) were falling by 6% after the company disappointed investors in its earnings release last week. This leader in the mobile technologies business reported very strong numbers, but investors felt the company´s new guidance wasn´t good enough. Those who are thinking about the middle or long term opportunities in this stock, however, have reasons to consider the possibility of buying some Qualcomm shares at a nice entry point.
Qualcomm´s management said during the press conference that the company is facing some supply bottlenecks which could affect sales in the following quarters. We are talking about production limitations for the 28 nanometer products; demand is strong, actually too strong for Qualcomm´s production capacity right now.
In their own words:
At this stage, we cannot secure enough supply to meet the increasing demand we're experiencing. We're working closely with our partners to bring additional capacity online. However, the constraints on 28-nanometer supply are limiting our potential revenue upside this fiscal year."
Production constraints are not precisely good news, but this is usually a transitory problem. The company may lose some sales due to this issue, and that explains the conservative guidance. But Qualcomm is in excellent position to capitalize growth opportunities in the long term; the company still has a leadership position in the mobile business and results for the last quarter where very strong.
- Revenue was above expectations at $ 4.94 billion versus $ 4.8 billion expected by analysts; these numbers imply a 28% growth rate versus the previous year.
- Adjusted earnings per share were better than expected at $ 1.01 vs $ 0.95 expected by analysts.
- Margins are quite strong with a 64% gross margin and an operating margin above 30%.
- Qualcomm shipped approximately 152 million CDMA-based MSM chipsets in Q2, up 29% year over year.
- Management expects a 28% increase in sales and 15% growth in earnings per share in 2012 at the midpoint of the new guidance.
Not so bad after all...
The real long term growth story for Qualcomm is that the company has a leadership position in technology for mobile gadgets like smart phones and tablets, which is a business opportunity with huge potential. The firm is very well positioned to keep benefitting from growth in this industry regardless of which hardware or software manufacturers dominate the market in the following years.
iPhone and iPad products from Apple (NASDAQ: AAPL) use Qualcomm technology, and the company sold 35.1 million iPhones in the last quarter, representing 88 percent unit growth over the year-ago quarter. Apple also sold 11.8 million iPads during the quarter, a 151 percent unit increase over the year-ago period. There is no slowdown in sight at Apple.
Many high end smartphones operated with Android also use chips from Qualcomm, so while Google, Apple, Samsung and many others fight the battle for the mobile computing business, Qualcomm seems to be in a very lucrative situation, capitalizing opportunities from different gadget manufacturers.
Production bottlenecks are a problem, and they can have a material impact on financial results. But they are transitory by nature, and Qualcomm is a very strong company with many growth opportunities ahead. This recent selloff could be the chance for opportunistic investors to get some Qualcomm stock while it’s down.
acardenal owns shares of Apple. The Motley Fool owns shares of Apple, and Qualcomm. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.