Why Qualcomm Exudes Quiet Confidence
Subhadeep is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Semiconductor giant Qualcomm (NASDAQ: QCOM) predicted a strong performance during the last three months of this year. The big question is – should you really believe them as a potential investor? Probably yes, and here are some reasons why.
Well, for one, the fact that they are confident of solving their 28-nanometer chip production problems by the end of this year is probably something you can bank upon. Qualcomm has been facing chip shortages, thanks to foundry partner Taiwan Semiconductor Manufacturing Company (NYSE: TSM) since April this year, and it knows further delays might lead customers such as Apple (NASDAQ: AAPL) to look elsewhere for these products. That would be a real disaster, given that Apple’s upcoming iPhone 5 is widely expected to have components manufactured by Qualcomm. At the same time, Qualcomm has a clear cut policy that it will not be owning a chip production facility anytime in the near future. And so, the company is in talks with as many as four alternate partners in a strategic attempt to procure these chips. That should be reason enough to feel optimistic about Qualcomm’s projections.
Qualcomm’s plans to fulfil demand by the end of this year is indeed well-timed, given the fact that almost all its major customers, including Apple, Samsung and HTC will be aiming at launching as many path-breaking handsets as possible, to make the most out of the year-end holiday season sales. In fact, the company claims that as many as 30% of total annual smartphones shipments are made during the October to November period. But that’s not all. The company is pushing forth its Snapdragon processors to PC manufacturers in cue with the launch of Microsoft’s Windows 8 operating system.
Another factor which Qualcomm has been quick to admit is that people in emerging nations are scaling up to smartphones at a much faster rate than those in developed regions such as North America and Europe. That has brought in profits for the company and more demand for its chips can be anticipated in future. In fact, weak demand in Europe and elsewhere has been one of the main reasons why the planet’s biggest manufacturer of semiconductors, Intel (NASDAQ: INTC), whose chips power four fifths of all computers, nearly halved its yearly revenue outlook citing weak demand. At the same time, one needs to remember that while Qualcomm is facing chip shortages even as it outsources the entire process to partners such as TSMC, Intel and others such as Samsung have their own production facilities.
But there’s yet another reason to feel good about Qualcomm’s future prospects. Always a pioneer in the wireless segment, thanks to the innovative CDMA technology, the company should be able to solidly cash in on the 2G to 3G upgrade wave at present. With the number of 3G users estimated to reach 2.8 billion within the next couple of years, according to Wireless Intelligence, Qualcomm looks like a sure winner on all sides.
While Qualcomm’s future operating expenses are likely to go up even as it scouts for chip manufacturing partners, this is one company that seems to reap benefits without any of the headaches associated with it. It does not make its own handsets, nor does it own chip production facilities, and yet mints money from the smartphone revolution. They can’t get smarter than this, can they?
subhadeeptech has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Intel, and Qualcomm. Motley Fool newsletter services recommend Apple and Intel. 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.If you have questions about this post or the Fool’s blog network, click here for information.