The Mobile Revolution and Its Trailblazer

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

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. As the 2012 year draws to a close, I would like to pinpoint on a trailblazer at the forefront of the mobile revolution, Qualcomm (NASDAQ: QCOM).

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Strengths:

  • Accelerated Revenue Growth: In 2007, Qualcomm reported revenue of $8.9 billion; in 2012, the company announced revenue of $19.1 billion, representing year over year annual growth of 16.50%, and this trend of growing revenues is highly anticipated to sustain into the future with projections placing 2015 revenue at $28.2 billion 

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  • Dividend: Currently Qualcomm pays out quarterly dividends of $0.25, which annualized puts the dividend as yielding 1.62%
  • Lack of Debt: In 2010, Qualcomm had upwards of $1 billion of debt on their balance sheets, however currently the company does not possess a cent of debt, a major upside to the business

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  • Institutional Vote of Confidence: 81% of shares outstanding are held by institutional investors, displaying the confidence some of the largest investors in the world have in the company and its future
  • Strong Margins: Currently Qualcomm possesses a net profit margin of 27.89%, displaying a company that is strong and profitable
  • Established and Diversified Nature: Qualcomm is valued at $104.99 billion, employs 26,600, and operates in countries all around the world, and with this established and diversified nature comes a level of security and predictability
  • Near Monopoly: Qualcomm’s chips are found in nearly all brands of mobile phones, tablets, smart grids, 3G and 4G networking equipment, and other devices, and thus nearly controls one of the fastest growing industries in the world

Weaknesses:

  • Massive Operating Expenses: Qualcomm is a major business, with thousands of employs, and it costs millions to run a business of such magnitude, however operating expenses  growth has nearly been outpacing earnings growth over the past years, an ominous sign

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  • Pricy Valuation: Qualcomm currently possesses a price to earnings ratio of 20.07, a price to book ratio of 3.14, and a price to sales ratio of 5.49, all of which point to a company that is slightly overvalued

Opportunities:

  • Dividend Growth: Since implementing their dividend program in 2003, Qualcomm has consistently raised their payouts, and further dividend growth is highly anticipated

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  • Acquisitions: In November 2012, Qualcomm acquired certain assets of EPOS Development, and further acquisitions in the future could introduce new technologies to the company and fuel future growth
  • China: In 2009, revenues derived from China was reported to be nearly $3.2 billion, in 2011, revenue derived from China was nearly $8.0 billion; representing year over year annual growth of 58.11%, and this fast-growing market is likely to continue fueling Qualcomm’s overall growth into the future
  • Mobile Industry Growth: The world’s consumers are demanding devices that are mobile, however still possess the power of a computer, and the rise of smartphones and tablets has significantly benefited Qualcomm, and will continue to do so well into the future



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Threats:

  • Competition: The semiconductor industry is a very competitive one, in which several major companies battle for a handful of major contracts, and this competition can lead to margin compression
  • Slowing Growth at Apple: Apple is one of Qualcomm’s largest partners, and provides a great deal of business to Qualcomm, and if growth was to slow at Apple as is widely expected, it could pose a threat to Qualcomm’s business
  • Slag in Consumer Spending: In an economic landscape riddled with such uncertainty and stagnation, consumer are less willing to spend substantial quantities of money on electronics that Qualcomm’s chips are in, threatening Qualcomm’s growth

Competition:

 Major publically traded competitors of include Ericsson (NASDAQ: ERIC), Intel (NASDAQ: INTC), Broadcom (NASDAQ: BRCM), and Texas Instruments (NASDAQ: TXN). All of these companies operate in the semiconductor industry, and rival Qualcomm. Ericsson is valued at $33.25 billion, and pays out a dividend yielding 3.45%. Intel is valued at $102.26 billion, and pays out a dividend yielding 4.38%. Broadcom is valued at $18.61 billion and possesses a dividend yielding 1.21%. Finally, Texas Instruments is valued at $34.47 billion and pays out a dividend yielding 2.73%.

The Foolish Bottom Line:

All in all, Qualcomm is a tremendous company with explosive revenue growth which is at the forefront of a mobile revolution. While the company depends heavily on Apple, it also possesses dozens of other customers and possesses a large exposure to the rapidly expanding Chinese market. At the end of the day, at the moment the company may be slightly overpriced, however on any pullback Qualcomm is an outstanding addition to any long-term portfolio. 


makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool owns shares of Intel and Qualcomm. Motley Fool newsletter services recommend 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!

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