Qualcomm Will Outperform in 2013

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

My smartphone has a Qualcomm (NASDAQ: QCOM) 1.7 GHz dual core processor. I used to think that it would last long in this market, since there is absolutely nothing that this beast can’t deliver. But I was wrong!  At CES 2013, Qualcomm introduced its Snapdragon 600 and Snapdragon 800 processors, which it claims to be up to 75% faster compared to its Snapdragon S4 1.5 GHz quad core processor. Moreover, the Snapdragon 800 processor is clocked at 2.3 GHz, which is higher than Intel’s (NASDAQ: INTC) quad core mobile processors (i5-3317u). It’s even challenging my ultra-book!

Clock, the King?

Some may argue that merely comparing clock speeds are not enough to rank processors, and rightly so, but here’s my point. AMD (NYSE: AMD) was never able to beat Intel in terms of performance even with higher clock speeds, because most of the benchmarks were optimized for Intel processors, which resulted in its higher scores. The fact that Qualcomm was able to stash in a 2.3GHz crystal in a mobile processor is commendable, and Intel and NVidia (NASDAQ: NVDA) will have a hard time matching up with Snapdragon mobile processors.

As Qualcomm steadily moves towards a monopoly in high performance mobile CPU’s, I believe that developers will begin to optimize their benchmarking apps for the Snapdragon line-up, due its widespread adoption. This would undoubtedly benefit Qualcomm and would make it harder for Intel and NVidia to compete with the market leader.

Beating the Peers

Additionally, the latest Snapdragon processors are based on the new Cortex A-15 developed by ARM (NASDAQ: ARMH), whereas NVidia’s Tegra 3 processors have an older Cortex A-9 architecture. ARM designs and develops microprocessors, and its proprietary architectures are being widely used by many semiconductor manufacturers, but perfected by some. Its new A-15 design gives the Snapdragon up to 40% processing performance advantage, over Cortex A-9 as used by NVidia in its Tegra 3.

But NVidia also released its Tegra 4 processor with Cortex A-15 architecture, which isn’t good for my Qualcomm-focused article. Jokes aside, Tegra 4 is capable of 4k video playback, just like Snapdragon 800, but is clocked at 1.9GHz, which is nearly 17% slower than Snapdragon. Given the fact that both processors use the same architecture, Qualcomm seems to have an edge in processing capabilities. But that’s not all! Snapdragon 800 can not only play 4k content, but is also capable of recording ultra-high definition video and capturing 55 Megapixel images. This gives Qualcomm’s Snapdragon a serious advantage over NVidia’s Tegra 4.

Solid Roadmap

Moreover, Qualcomm is set to release its Snapdragon S4 Prime processor this year, which will be clocked at 2.5 GHz, around 31% higher than Tegra 4 processors. Tegra processors are known to deliver solid graphical performance, but the game is about to change. Snapdragon line-up uses AMD’s mobile graphics, and Snapdragon 800 uses adreno 330 gpu, which is the fastest adreno ever. Intel is also set to release its renewed line-up of “Merrifield” processors in 2013, but it’s too soon to comment on it until the benchmarks roll in.

Foolish Wrap Up

In my opinion, Qualcomm is firing on all cylinders, and it would be really difficult for its competitors to catch up with its beastly Snapdragon 800. The company operates with little or no debt, and with a forward P/E of 13.61x, its shares appear to be undervalued. Analysts estimate its annual EPS growth to average around 14.14% for the next 5 years, which means that its shares could double in around 5 years. I believe Qualcomm is a great stock to buy, and it gets a Foolish Outperform Rating.

 
 


PiyushArora 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!

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