The Best Semiconductor Bet in the Smartphone Market

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

Qualcomm (NASDAQ: QCOM) is a semiconductor company that designs and manufactures wireless technology products and services. It has three business units: Qualcomm Technology Licensing Division (QTL), Qualcomm Technologies, Inc. (QTI) and Qualcomm CDMA Technologies. The company has emerged as the leading smartphone vendor in the market, and industry trends show that it will continue to dominate this space.

Financial performance

Qualcomm's revenue rose by 24% in the second quarter of 2013 year-over-year to $6.1 billion. Although sales improved, net income decreased by 16% year-over-year. The earnings before interest, tax, depreciation and amortization (EBITDA) margin improve by 27% over the previous year.

Qualcomm’s P/E ratio is 18.3x, which is a significant discount as compared to the industry average P/E ratio of 40. If we look at a competitor, NVIDIA (NASDAQ: NVDA) has a current P/E ratio of 15.

The financial strength of the company is shown by the quick ratio, which stands at 2.9. The liquidity ratio indicates it is extremely unlikely that Qualcomm will face any financial problems in the near future. Based on the cash in hand of $4.9 billion, it can spend a lot more on R&D. Recently, Qualcomm announced a dividend of $0.35 per share, a phenomenal increase of 40% over the previous quarter.

Future estimates

For the second quarter of 2013, analysts expect revenue to be in the range of $5.8 billion to $6.3 billion and EPS between $0.85 and $0.89. Qualcomm is the leader when it comes to innovation in the handheld space. Its new Snapdragon 600 and 800 processors will help it maintain dominance in the handheld industry.

The company expects continued growth in 3G/4G networks and it will continue to benefit from this growth. A major concern for the company is its dependence on a handful of smartphone clients who can change their suppliers at their own convenience. Its market is expanding rapidly, which mitigates the danger of over dependence on a small number of clients.

Competitive landscape 

Qualcomm is an industry leader due to its experience and financial strength.

The new Nokia Lumia will also contribute to the sales of Qualcomm. According to recent reports, Nokia is selling new Lumia phones through Verizon Wireless, and the devices have dual core processors by Qualcomm.

Intel (NASDAQ: INTC) is working hard to move into the mobile market.
For this purpose, it has developed a new mobile processor named Silvermont. The company is also giving real competition to ARM competitors such as Qualcomm in the Windows 8 market with its baytrail processors. Intel is now spending most of its time on developing new chips for smartphones. It is growing in the tablet market and has an estimated market share of more than 90% of windows-based tablets.

For its part, Nvidia has announced the acquisition of semiconductor company Icerawhich will strengthen its position in mobile core. This acquisition will give NVidia more of an ability to compete with Qualcomm and Intel.

Nvidi’s Tegra 4i appeared in February. It integrates Tegra 4 with the i500 modem. The i500 modem is the fruit of Icera acquisition. According to Nvidia, Tegra 4i will bring super-phone capabilities to the mainstream smartphone market.

Qualcomm’s latest innovation, the Snapdragon 600 processor, offers a better performance compared to the 8960. During 2012, Qualcomm’s 8960 processor faced stiff competition from NVidia’s Tegra 3. Some analysts believe that this year will be a clean sweep for Qualcomm’s Snapdragon 600 processor. 


Based on future predictions of share price and revenue estimates and greater moves toward innovation and brand building, I believe that Qualcomm will increase its customer base and profitability. The new Snapdragon 600 and 800 chips will ensure the company’s dominance on the handheld space. These factors make Qualcomm a long-term buy.

The mobile revolution is still in its infancy, but with so many different companies it can be daunting to know how to profit in the space. Fortunately, The Motley Fool has released a free report on mobile named "The Next Trillion-Dollar Revolution" that tells you how. The report describes why this seismic shift will dwarf any other technology revolution seen before it and also names the company at the forefront of the trend. You can access this report today by clicking here -- it's free.

Red Chip has no position in any stocks mentioned. The Motley Fool recommends Intel and NVIDIA. The Motley Fool owns shares of Intel and 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!

blog comments powered by Disqus