Looking for a Mobile Investment? Consider This Stock
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With technology companies facing a substantial drop in PC sales they are trying to streamline their operations in order to bring greater operational and financial stability. Qualcomm (NASDAQ: QCOM) posted an impressive 20% increase in its 4Q12 earnings driven by its gains in the licensing business and robust sales of chipsets in wireless devices.
Qualcomm is the 7th largest technology company in the United States and it has for the first time gained a larger market value than its main rival Intel. Shares of Qualcomm jumped by 7% due to higher earnings, thus giving it a market capitalization of $106 billion and in the process leaving behind Intel's market capitalization of $105 billion. This proves that Smartphones are gaining traction over computers.
Qualcomm enjoys a competitive edge over its peers with its built-in advantages as the company's chips are already placed in industry leading smartphones from companies like Samsung, Apple, Google and Microsoft.
The company has a winning position in the Smartphone segment as its rival Nokia (NYSE: NOK) is losing its 15 years of industry leading position and finding it hard to remain in competition in the industry. With Symbian being dead, the company is also finding it hard to shift the consumer’s focus over to its Windows based smartphones in collaboration with Microsoft as Google's Android is at a very strong position in the Operating Systems field. Nokia's market share in China is declining continuously as 90% of the market share has been captured by Android, bringing Nokia’s market share down. I have also covered Nokia in my other post here.
On the other hand, Qualcomm has reaped benefits from its important client Apple (NASDAQ: AAPL) over last several quarters. Apple has given a tremendous return in the last year. Apple’s iPhone5, a blockbuster mobile device, uses Qualcomm's 4G LTE chip, making Qualcomm a clear winner. Apple’s focus remains on the high end market in smartphones which will boost its profits over its competitors and will directly benefit Qualcomm. Compared to the industry, the company has the lowest PEG ratio of 0.55 that makes it more attractive.
The majority of Android phones are running on Qualcomm's Chipsets, and the company is expected to deliver double digit growth figures and drives that give the company a potential upside. Let’s have a look at these growth drivers.
EPOS Acquisition: Qualcomm has acquired assets of the EPOS Development LTD (an ultrasound technologies manufacturer for input solutions and gesture recognition) to develop new tools for its consumers for better interaction with their mobile devices. This technology allows touch free gestures and pen interactions as the user input mechanism. Qualcomm has already enabled this technology on its Snapdragon Processor for a unique and more powerful next generation user experience for tablets, E-readers, and smartphones. With this addition, the Snapdragon Processor will be further strengthened. The company looks forward to accelerate the adoption of this technology in the Enterprise, Education, and Consumer market.
Smartphone/3G/4G Growth : Smartphones are the primary long term growth driver for Qualcomm as the company played a smart move by migrating the consumers from 3G to 4G smartphones. Qualcomm expects 5 billion smartphone shipments from 2012 to 2016. Also, triple digit growth is expected in its 3G and 4G connections for the next five years in the emerging markets of India, China, the Middle East, and Latin America. Qualcomm's 3G/4G wholesale device ASP, which was only $206 in 2011, is estimated to grow to $220 in 2013.
With these growth prospects, Qualcomm offers a solid entry for investors looking for long term investment. It is also making a 31% Y/Y increase in R&D to maintain its dominant position against its competitors Nvidia and Intel. At present, 4G LTE is Qualcomm's largest R&D program. Qualcomm has its Snapdragon Processors in ~500 different devices from 70 different manufacturers with additional 400 designs under development. The company is very well positioned with its ~$25.6 billion in cash which it intends to repurchase shares. Other than the smartphone segment, Qualcomm also has many new opportunities such as the Windows RT and Small Cells for growth.
ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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!