Investors Should Follow Demers to Qualcomm
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Advanced Micro Devices (NYSE: AMD) has set free one of the icons of the computer graphics world, Eric Demers. Last week, AMD announced Demers was leaving to pursue other opportunities, of his own accord and under good terms. The ‘other opportunities’ turns out to be Qualcomm (NASDAQ: QCOM), an all-in-one developer, manufacturer, and marketer of digital telecommunications products and services. Qualcomm is on the rise, and it is my prediction we will see even more with its new addition to the team.
What Is Happening
Demers worked for ATI since 2000. After the company was acquired by AMD in 2006, he rose through the ranks to senior architect and eventually graphics Chief Technology Officer. Even though competitors such as Intel and Nvidia made several attempts to lure Demers away during the past decade, it seems it was Qualcomm who made him the offer he couldn’t refuse.
Though everyone appears to be well-wishing, especially AMD’s CTO Mark Papermaster, it is doubtful anyone at the company is overjoyed at seeing a leader and senior staff member switch teams. The company has stated it doesn't view Qualcomm as a competitor, as it has no plans to get into the smartphone business. However, the tablet market has always been in its sights where a prominent choice remains Qualcomm's Snapdragon chip.
Poaching a graphics legend is not the only feather in Qualcomm’s cap. The company has been in the news lately for its collaboration in the healthcare field. Qualcomm Life has announced along with an advisory council collection, its intention to move ahead with investment AirStrip Technologies, a company that is developing software applications for medical teams both at point of care and for remote access.
Qualcomm Life has consistently focused its attention on developing a wireless health network that improves the capabilities and connectivity of medical devices. With emphasis on creating a seamless collection, transfer, and data management systems, the company is poised to pioneer the medical and healthcare technology market.
Qualcomm also announced yesterday the release of its fifth generation Gobi embedded data connectivity reference platform for mobile devices. Delivering faster LTE connectivity, the platform will support leading operating systems, such as Windows 8 and Android, with a broadband interface with carrier selection. This is tech-speak for faster internet on a wide range of devices.
What Has Happened
Demers has done a great deal for AMD. Credited for ATI's highly acclaimed R300 architecture, the former senior staff member has been a bulwark of the graphics arm of the company. Starting in 1990 at Matrox Corp as a junior engineer, Demers jumped from SGI to ArtX before assuming his role at ATI, now AMD. The move to Qualcomm seems a logical next step.
Qualcomm is the inventor of code division multiple access technology (CDMA) that has become a world standard for the wireless communications industry. The two arms of technology have always been the functional and the aesthetics. A product must work appropriately and have a user interface that is orderly and, if possible, appealing. Qualcomm now has the ability to do both. Drawing on its over 25 years of wireless connectivity experience, it can, under Demers’ leadership, add the ease of use and universal interoperability to dominate the medical field and beyond.
Obtaining a graphics guru such as Demers has helped the company not just in production but perception. Investors become more assured when the company shows its ability to attract heavy hitters to their team.
What Will Happen
The excitement has already begun. Zacks.com, one of the industry’s independent research firms, has recently highlighted Qualcomm as a top-rated pick for aggressive growth. I completely agree. The company expects to earn between $3.55 and $3.75 per share on revenue growth of 25-32%, up from previous guidance of $3.42 to $3.62 and revenue growth of 20-27%.
AMD is set launch its next-generation accelerated processing unit, codenamed Trinity, in second quarter 2012. My prediction is this roll out will be shadowed by other companies with more prominent market position such as Apple (NASDAQ: AAPL) and Nvidia (NASDAQ: NVDA). Without strategic partnerships and some positive media attention, AMD will not see the boost it is seeking.
Why It Will Happen
Company leaders know the power of momentum. Movement of any kind encourages action on the part of investors – both good and bad. In the case of Qualcomm, the positive flow will most likely generate the same from those with the funds. Qualcomm has shown itself to be attractive to those in the industry (Demers), and because of this, will become more appealing to investors.
It is also a smart move for Qualcomm to broadcast it's forward momentum with products, plans, and people. These press releases for roll outs and collaboration are perfectly timed with its recently reported record results for the first quarter of its fiscal 2012. Currently at $62 per share, everything seems to be coming up aces for the tech company, and it is my prediction this will continue.
The investor should not completely count out AMD. Solid financial operations and margin trends for the company make it still a good hold. A current margin snapshot for AMD shows its gross margin is 44.8%, while operating margin is 7.2% and net margin is 7.5%. These are solid numbers, and indicate that AMD is smart in keeping a portion of its revenue to invest in growth and fund new strategic plans.
The company is in the midst of getting its modular processor strategy off the ground. Though on paper this sounds promising, few will judge it a success until they see execution, and this means prolonged mediocre performance.
Summary
Investors will be wise to jump into Qualcomm stock. I think great returns are on the horizon based on its momentum, strategic partnerships, and excellent promotion strategy. This is not to say that AMD is a wash and should be discarded. The company is still competitive in its field and has the depth of leadership necessary to continue operations and possibly gain value with its future products.
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