On May 15, 2014, we issued an updated research report on Qualcomm Inc. (QCOM). The company improved its year-over-year performance on strong contributions from its Internetworking and Broadband Access product divisions. The results were supported by an improved spending atmosphere and increased strategic investments by its carrier and enterprise customers. Also, the company’s international business generated record high revenues.
Qualcomm has delivered positive earnings surprises in three quarters last year, with an average beat of 2.18%. The company reported mixed financial results for the second quarter of fiscal 2014 with the bottom line beating the Zacks Consensus Estimate but the top line missing the same.
Qualcomm benefits from the significant growth in demand for 3G/4GLTE wireless technologies and smartphones in the emerging markets, particularly in China. Moreover, China’s decision to rollout the 4G Long Term Evolution (:LTE) technology will further drive Qualcomm’s chip demand. China Mobile Limited (CHL) is expected to sell around 100 million LTE-enabled phones by the end of 2014, which will further benefit Qualcomm while moving ahead.
Qualcomm has a highly diversified product portfolio. Several original equipment manufacturers are adopting high-speed 3G and 4G technologies for connecting tablets, eReaders, machine-to-machine communication devices and gaming devices. Qualcomm’s state-of-the-art Snapdragon and Gobi platforms for global wireless connectivity support almost all varieties of mobile broadband equipment.
On the downside, the smartphone market has become intensely competitive resulting in lower ASP, which in turn, may negatively impact Qualcomm’s royalty business. Also, aggressive competition in the mobile phone chipset market may hurt Qualcomm’s profits in the future. The company is facing severe competitive threat from its closest rival, Intel Corporation (INTC), which has been redesigning chipsets for the mobile computing market. Meanwhile, Intel has initiated the shipment of its first multi-mode LTE baseband modem.
Qualcomm currently carries a Zacks Rank #3 (Hold).
Another stock worth considering in this sector is Polycom Inc. (PLCM) which carries a Zacks Rank #1 (Strong Buy).