Invest in the Future of This Company

Adam is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

After releasing a great earnings report after the market close Wednesday night, Qualcomm (NASDAQ: QCOM) gapped up nearly 8% the following morning. Now trading in the middle of its 52-week range, can the company ride this momentum up to a new high?

A simple SWOT analysis might help us uncover a few things about the company’s prospects and where it’s headed.  I don’t do SWOT analyses though (explanation found here), but here are some strengths, weaknesses, threats, and opportunities for Qualcomm.

Strengths

  • Largest Mobile Chip Manufacturer – Qualcomm chipsets are found in just about every internet enabled mobile device these days. At the very least you’re sure to find a Qualcomm 3G or 4G modem inside your device.
  • Research & Development – Qualcomm is a leading innovator in the mobile processing industry. It is the only supplier of 4G optimized chips. It’s newest line of Snapdragon processors are faster and more energy efficient than their ARM-based competition.
  • Partnerships – Qualcomm currently has lucrative partnerships to put their chips in devices made by Apple, Samsung, Nokia, HTC, and numerous other companies. These companies account for the vast majority of mobile handsets, where Qualcomm has become a dominating force.

Weaknesses

  • Diminishing Licensing Fees – As smartphones and tablets become more popular and move into developing countries, there is significant downward price pressure on new handsets and tablets. Because Qualcomm’s licensing fees are based on a percentage of the device’s price, lower prices mean lower fees.
  • Supply Chain – One of the biggest problems Qualcomm has faced recently is the inability for it to keep up with demand on its new 28nm chipsets. While the company saw improvement in its most recent quarter, executive Vice President Steve Mollenkopf said “We still have demand higher than our ability to supply” in the company’s conference call earlier this week.

 Threats

  • Nvidia (NASDAQ: NVDA) – Nvidia is attempting to compete with Qualcomm on the high and low-ends of the market. Its new Tegra line of chipsets has made its way into high-end multi-core mobile devices this year. Nvidia is also working to integrate its new chips with its LTE radios to compete with Qualcomm’s dominance in that area. Additionally, Google (NASDAQ: GOOG) recently tapped Nvidia for its low-end Nexus 7 tablet.
  • Intel (NASDAQ: INTC) – With the new mobile focus of Microsoft’s (NASDAQ: MSFT) Windows 8, Intel has a foot in the door to the world of mobile computing. While not a significant threat at the moment, Intel has the potential to become a big player in the mobile processor market. The company is pouring cash into research and development and in all likelihood will make a concentrated effort to enter the mobile market soon.
  • Weakening World Economy – A struggling global economy will put downward pressure on sales, prices, and profits for any global company. Qualcomm will likely see a deceleration in revenues as the U.S. becomes more saturated and Europe and China stand on shaky economic ground.

Opportunities

  • Windows 8 – Qualcomm’s longstanding relationship with Microsoft will allow the company to take the inside track in developing chips for Windows 8 tablets and Windows Phone 8 handsets. While Nvidia got the nod for Microsoft’s Surface, I expect Qualcomm chipsets to be present in most of the company’s phones, and potential tablet entrants from other companies.
  • Emerging Markets – I mentioned earlier that an increase in mobile device sales in emerging markets hurts Qualcomm’s licensing fees, the company is taking measures to take advantage of the growing markets abroad. It recently added two new entry-level Snapdragon chipsets specifically targeted toward emerging markets such as China. Analysts expect China to increase its share of the global smartphone market by over 800 basis points to 26.5% by the end of the year. Comparatively, the U.S. comprises less than 18%.

I don’t think Qualcomm has hit the end of its run by far. It’s the market leader in one of the fastest growing segments in the industry. Its relationships with hardware manufacturers puts it in a good position to maintain and even grow its outstanding market share. The weaknesses in its supply chain are coming under control, and it is making up for lower licensing fees with volume (hence the supply problem). While it faces tough competition, and likely tougher competition on the horizon, it still has a strong position and the company’s strong R&D department will continue leading the industry for the near future. 


adamlevy has no positions in the stocks mentioned above. The Motley Fool owns shares of Google, Intel, Microsoft, NVIDIA, and Qualcomm. Motley Fool newsletter services recommend Google, Intel, Microsoft, and NVIDIA. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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