Get in on Smartphone Growth With This Company
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All over the world, consumers are trading in their clunky old cellphones for high-powered smartphones. This shift is perhaps the most significant development in the world of computing and information technology since the advent of the internet. A number of firms have been able to capitalize on this transition, and some were left behind because of it. One way to play this trend is to buy smartphone manufacturers. Another, perhaps more lucrative way, is to buy stocks of companies that produce the chips incorporated in these phones.
Qualcomm (NASDAQ: QCOM) is one of the world’s largest producers of smartphone chips, and is a main supplier of the two smartphone giants, Apple and Samsung. The firm has about 26,600 employees and a market cap of over $105 billion. As its flagship Snapdragon chip is featured in more and more smartphone designs, Qualcomm appears to be growing its market share and solidifying its position as major chipmaker. In addition, they supply parts for Apple’s wildly popular iPad 3.
Qualcomm earnings have been consistently strong over the last few years with EPS growth easily outpacing the industry for the last five. Q4 EPS came in at $0.89 beating the street by 9%. Revenues were $4.87 billion, up 18% YoY and net income was up 20% YoY to $1.27 billion. For fiscal 2012, the firm delivered record results in terms of revenue and earnings. Revenue was up an incredible 28% and net income an even more massive 43%, both of course driven by the global rise in smartphone sales. For all intents and purposes, the Q4 release delivered blowout earnings. Competitor Nvidia (NASDAQ: NVDA) also had a great quarter, capitalizing on the same trend, with $1.2 billion in sales and $209 million in net income, which were also record results for the firm. The difference in figures between these companies however helps illustrate just how large Qualcomm’s market share is.
Qualcomm looks quite attractive in terms of valuation as well. Qualcomm has a TTM P/E of 17.56x earnings, well under the 20.85x industry average. The forward P/E is only 14.6x earnings. The stock trades at 3.27 to book which is more or less on par with the industry. Return on equity is a solid 17.46% and the firm has a very healthy operating margin of 30.12%. With a total debt to equity of only 0.18 and over $12 billion in cash, the firm also has an excellent cash position which should allow them to fund the growing amount spent on R&D, necessary to stay ahead of the competition. For comparison, chipmaker Intel (NASDAQ: INTC) trades at a worryingly low 9x earnings and is down over 17.5% in the last twelve months, compared to Qualcomm’s 8.8% rise. Intel also has a strong operating margin of over 30% and a higher return on equity of 26.44%.
Qualcomm had a fantastic last quarterly release and presented impressive figures for fiscal 2012. Delivering record results, the firm has managed to capitalize firmly on smartphone growth worldwide, and has conquered a large market share. This trend looks set to continue, despite global economic headwinds. At the moment, the stock is also valued attractively, and I would recommend it to investors looking to profit from the shift in computing trends.
Compare and Contrast
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DUJames has no positions in the stocks mentioned above. The Motley Fool owns shares of Intel, NVIDIA, and Qualcomm. Motley Fool newsletter services recommend Intel 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.