The Monumental Shift to Mobile and a Way to Play It

By Ryan Guenette - August 9, 2012 | Tickers: BRCM, INTC, QCOM, ERIC, TXN | 0 Comments

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The world is rapidly shifting to mobile devices. Media tablets and smartphones shipments are becoming overwhelmingly more voluminous compared to personal computer shipments. This has been led by the consumers' changing necessities. The global consumer now demands devices that are mobile, but yet still possess the power of a home computer. The shift to devices that fulfill these needs, such as smartphones and tablets, is shown below contrasted by personal computers.

So how should one play this mammoth shift to mobile?

The One Company that has its Hand in Every Device Maker’s Pockets  

The competition in the smartphone and tablet industry is fierce and crowded. Numerous companies battle for every hundredth of market share, as each percent of the market is worth millions. Microsoft, Apple, Samsung and other players in these fields must develop, produce, test, and redesign, if necessary, their products. These competitors must play their cards perfectly to gain a sizable share of the market. If Apple’s iPhone does not sell as much as projected, the company is in grave trouble.

All Qualcomm (NASDAQ: QCOM) must do is innovate its chips to integrate into any company’s devices. Qualcomm’s chipsets are found in nearly all brands of mobile phones, tablets, smart grids, 3G and 4G networking equipment, and other devices. Qualcomm is compatible in nearly all brands of mobile devices, allowing it to sell virtually across the entire market. This is a tremendous trait -- if the company can is able to integrate its technology into even a select percentage of the market, the market is rapidly growing, as shown below.

Strong Fundamentals

In 2009, Qualcomm reported earnings per share of $0.95. In 2014, the average analyst consensus believes earnings per share will reach $3.64. That represents an increase of 283.16% in earnings per share over just 5 years. Based on these statistics, its compound annual growth rate (CAGR) is 30.82%, an incredible feat for a largely established company.

Qualcomm’s earnings per share grow every single year, presenting consistency in this division of a company. Its sprawling growth rate will allow the company to reinvest in research and development, to develop innovative chips pursued by device makers. In addition, the company pays out an annual dividend of $1.00, which at current prices yields 1.63%. Its dividend is not tremendously significant, but outpaces the 10-year treasury rate at 1.60%, and nearly offsets inflation at 1.70%.

All in all, Qualcomm possesses a rock-solid growth profile, as well as decent dividend. The chart below displays Qualcomm’s sales, operating profit, net income, net margin, operating margin, earnings per share, dividend, and rate of dividend (the percentage of net income that is paid out in the dividend) over the coming years.

Industry Trailblazer

Compared to some of Qualcomm’s most prominent competitors, such as: Ericsson (ADR) (NASDAQ: ERIC), Intel (NASDAQ: INTC), Texas Instruments (NASDAQ: TXN), and Broadcom (NASDAQ: BRCM), Qualcomm compares relatively favorably.

In terms of growth, Qualcomm stands in the middle of the road, while Broadcom tops the charts. Ericsson pays out the largest dividend, with Intel possessing the fastest-growing dividend. In the fundamental ratio comparison, Intel trades at the lowest multiple, with Broadcom trading at a premium. When growth is taken into account, Ericsson trades at a discount, while Texas Instruments appears overvalued. In the net profit margin comparison, Qualcomm stands out to the upside, while Ericsson stands out to the downside.

The Foolish Bottom Line

To make huge profits, Apple or other devices companies have to invest millions into developing and producing the next blockbuster device. Qualcomm doesn’t care if Apple, Microsoft, or Samsung develops the next blockbuster device; all they want is to integrate their chip into it.

Because of Qualcomm’s innovative profile, it's able to integrate its chips into nearly the entire marketplace. As the marketplace expands, with the rapid shift to mobile devices, Qualcomm will be in perfect position to take advantage of this huge opportunity.

All in all, Qualcomm may face some considerable inconsistency from quarter to quarter, but over the long-term, the company offers a perfect method for any investor to play the monumental shift to mobile devices.    

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