The Troll at the Gate: Why This Company is the Clear Winner in Smartphones
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Families who watch Nickelodeon’s popular Dora the Explorer series with their children may be familiar with the Grumpy Old Troll character, which routinely greets Dora and Boots at every bridge crossing. The troll sings a cute song and requires its visitors to solve a riddle before letting them pass.
In consideration of investment options for growing smartphone and tablet demand, the retail investor often overlooks Qualcomm (NASDAQ: QCOM), a technology giant and former Wall Street darling during the tech bubble of 1999–2000. The Company’s propriety Snapdragon processor is the mobile chipset of choice for a Who’s Who list of manufacturers, including Samsung’s popular Galaxy SIII, Google’s (NASDAQ: GOOG) Motorola Mobility DROID RAZR HD, Nokia’s (NYSE: NOK) new Lumia 920, and Dell’s (NASDAQ: DELL) XPS 10 tablet. Qualcomm also manufactures the 4G LTE modem and multi-band/mode RF transceiver in Apple’s (NASDAQ: AAPL) iPhone 5. Hopefully, readers can now understand the analogy to Dora the Explorer’s Grumpy Old Troll—no matter which device the consumer chooses, Qualcomm emerges as the winner with its chipsets embedded in a host of new phones being manufactured.
Expectations were set too low for Qualcomm going into its Q4 and FY12 earnings release held on November 7, 2012. The Company delivered the trifecta for investors in the after-hours session by 1) handily beating earnings estimates by 7 cents a share with EPS 89c reported vs. 82c consensus; 2) reporting revenue of $4.87 billion vs. $4.67 billion estimates; and 3) raising guidance on earnings and revenue for both the first-quarter of 2013 and the full-year 2013.
The strong report and subsequent rally in Qualcomm shares caused the Company’s market capitalization to surpass that of competitor Intel Corporation (NASDAQ: INTC) overnight. Intel has experienced difficulty increasing its market share in the mobile chip business, causing it to lose its preferential status among investors. Intel also has significant exposure to the declining PC market, another attribute which may be responsible for its recent fall in share price.
Here are further reasons why readers should consider an investment in Qualcomm:
- Despite the broader decline in the S&P 500 and Nasdaq indices, Qualcomm shares have held steady at the $62 level since its stellar earnings report on November 7, indicating strong investor appetite for its shares.
- The Company sees 2013 3G and 4G device shipments growing at 14 percent, and recently re-affirmed its long-term plan to have double-digit revenue and earnings-per-share growth over the next five years.
- Deutsche Bank raised their price target on Qualcomm shares from $70 to $74, based on the strong execution and guidance in the recent quarter. Morgan Stanley and Citigroup also have Overweight/Buy ratings on Qualcomm with $73 and $74 price targets respectively.
- Qualcomm recently held an analyst day in San Diego on November 15 and participated in the 2012 Credit Suisse Technology Conference on November 27.
In conclusion, while one may consider an investment in Apple, Dell, Google, or Nokia based on the merits of their next mobile device, Qualcomm offers investors plenty of upside no matter who emerges as the ultimate winner in the ensuing smartphone and tablet battle. Furthermore, Qualcomm pays a 1.6% dividend yield, currently $0.25 per quarter, which has increased in payout going all the way back to 2003. The Company reports Q1 FY13 earnings on Wednesday, January 30, 2013.
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Although he enjoys watching Nickelodeon's Dora the Explorer, John Macris does not not own shares in any of the companies mentioned in this entry.The Motley Fool owns shares of Apple, Google, Intel, and Qualcomm. Motley Fool newsletter services recommend Apple, Dell, Google, and Intel. 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!