A Winner in the Mobile Revolution
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The mobile computing revolution is here to stay; and this trend will generate plenty of opportunities for growth going forward. While industry giants like Apple (NASDAQ: AAPL) and Samsung (NASDAQOTH: SSNLF) fight each other over dominance in devices, Qualcomm (NASDAQ: QCOM) is in a position of remarkable strength to benefit from the mobile boom as a leading supplier to the major industry players.
In the right places
Qualcomm is a key provider of digital wireless telecommunications products and technologies based on its code division multiple access (CDMA) technology among other products and services. The company is strongly integrated into Apple's iPhone and iPad products as well as many Android-based devices, including the best-selling products from Samsung, so it’s positioned for growth under different competitive scenarios.
Apple was the undisputed leader in smartphones and tablets when its products were in their initial growth stages and no competitor was at the same level in terms of quality. But then came Google with its enormously popular Android operating system and it leveled the field, allowing Samsung and other lower cost manufacturers to gain market share versus Apple, especially in emerging markets.
While Apple is still dominant in the high end of the smartphone market, Samsung has achieved a big lead in emerging countries, where pricing is a big plus for the Korean manufacturer. When it comes to tablets, Samsung and other Android devices have also been gaining market share versus the iPad in the last few quarters.
But this competition is far from over. Apple delivered better than expected iPhone sales in the last quarter with units sold growing 20% to 31.2 million, proving that there is still room for growth in the high end segment of the market. Samsung, on the other hand, disappointed investors with lower than expected sales guidance in its last earnings report.
Besides, according to several news reports, Apple may be launching its new iPhone model on Sept. 10, and the company could also announce a cheaper version of the product -- the iPhone 5C -- which could be especially effective in terms of regaining market share versus Samsung in the price-sensitive emerging markets.
Price competitiveness is becoming critical in smartphones, and the same is going in tablets, where low cost devices are rapidly gaining participation. Like if that wasn't enough uncertainty, Google recently launched its new Nexus 7 tablet, which has received widely positive reviews and sells for a competitive price starting at $299.
The new version of the Nexus 7 will be replacing the Tegra 3 chips from NVIDIA with Qualcomm's products, specifically a 1.5GHz Snapdragon S4 Pro. If Google wins the tablet wars, then Qualcomm wins too.
No slowdown in sight
Wall Street analysts have been voicing their concerns regarding a possible slowdown in the mobile industry due to market saturation, but that doesn’t seem to be the case judging by Qualcomm's financial performance.
The company delivered sales growth of 35% year over year during the last quarter, and earnings per share increased 21% versus the same quarter in the previous year. Qualcomm also raised its sales forecast for this year by $600 million due to strong demand in emerging markets.
Lower priced devices are the big demand drivers in the current growth phase of the mobile industry, so Qualcomm will most likely face some margin pressure in the short term. However, volume expansion is likely to remain strong enough to produce healthy growth in sales and earnings.
According to Gartner, the penetration rate of smartphones in emerging markets is still only 10% of the total population, and global smartphone demand is expected to to grow at an annual compounded rate of 20% from 2012 to 2017. Regarding tablets, Gartner is expecting a huge annual increase of 67.9% in 2013 as tablets continue gaining market share versus PCs.
Besides, Qualcomm should benefit from the transition towards 4G/LTE. In the future, many smartphones and tablets will be compatible with 4G/LTE and 3G at the same time. The transition process is still in its first stages on a global basis, and products need to offer adaptability. This means that Qualcomm will continue making money from its 3G and its 4G/LTE patents for quite some time.
The mobile industry still has many years of healthy growth ahead of it. While device manufacturers are fighting each other and reducing prices to gain market share, Qualcomm is in a very comfortable position to benefit from the mobile revolution by supplying to the major industry players. This leading industry supplier is a smart way to benefit from mobile growth in the long term.
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Andrés Cardenal owns shares of Apple, Google and Qualcomm. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Qualcomm. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!