Smartphone Decline Be Darned
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After the big pullback, the stock is now down more than 3% for the past 12 months.
Qualcomm has significant exposure to the 3G wireless tech market and smartphones in the emerging markets, particularly in China. Globally, approximately 85% of wireless networks support 3G technologies. With wireless companies shifting to the next-gen 4G Long Term Evolution (LTE) technology, Qualcomm should see further growth, given that mobile handset manufacturers have to develop phones that will be compatible with this network.
What's more is that during the first quarter of fiscal 2013, Qualcomm shipped 182 million MSM chipsets, up 17% year over year. This figure was far better than the company's guidance of a mid-point of 173 million. Qualcomm also reiterated its full-year revenue between $24 billion and $25 billion, which is up from its prior forecast of between $23.4 billion and $24.4 billion.
- Even with the recent poor guidance by the likes of Samsung and Apple, Gartner expects the tablet and smartphone market sales to grow 9% in 2013. This, thanks in part to the fact that smartphones are becoming more affordable, is being driven by adoption in emerging markets and the prepaid segment in mature markets.
- Of the 1.875 billion mobile phones expected to be sold in 2013, one billion units are forecast to be smartphones, compared with 675 million smartphone units in 2012.
- Qualcomm's chips are not only in the higher-end smartphone devices, but also the cheaper handsets that are popular throughout Asia and developing nations.
- Although smartphone shipments might be slowing, the growth is still robust. The global smartphone market is likely to expand 27% this year, according to IDC.
Broadcom (NASDAQ: BRCM) is a global semiconductor solution for wired and wireless communications. Broadcom focuses on technologies related to connectivity, bandwidth and content.
The continued expansion of pay-TV and Internet-access services internationally, especially in China and India, provide significant opportunity for growth. As well, adoption of high-definition pay-TV services and consumer preferences for HD content are other key drivers. Broadcom also has agreements with major firms like Cisco, Nortel and Sony.
The hedge fund trade
Going into 2013, Qualcomm, by far, had the most hedge fund interest. There were a total of 89 hedge funds long the stock. This includes the top position holder, Viking Global, with a $708 million position in the stock and comprising 4.9% of its 13F portfolio (check out Viking's high upside picks).
Don't be fooled
Qualcomm saw a nice pullback last week, potentially providing investors with a great entry opportunity. The company pays investors a 2.2% dividend yield and is stellar at generating returns for shareholders. Qualcomm's return on investment is upwards of 17.7%, compared to Texas Instruments' 10.8% and Broadcom's 8.9%.
Meanwhile, Qualcomm also has one of the best balance sheets, with nearly no debt; the company's debt ratio is a mere 0.05%, whereas Texas Instruments is 28%, Intel 16% and Broadcom 15%. These are all positives for the company and should allow it to better hedge any interim declines in smartphone shipments. And although the smartphone growth might be slowing, it's still growing robustly, not to mention the fact that Qualcomm has exposure to the lower-end mobile market that's popular in emerging markets.
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Marshall Hargrave has no position in any stocks mentioned. The Motley Fool owns shares of Qualcomm. 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!