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As the largest mobile chipmaker in the world, Qualcomm (QCOM) is expected to be one of the main beneficiaries of the upcoming 5G cycle.
However, there’s a particular segment of Qualcomm’s business that gets less attention, but has gradually become more prominent.
Susquehanna analyst Christopher Rolland recently spoke to Qualcomm’s resident RF expert, to discuss an “often-misunderstood piece of Qualcomm’s business model.”
Qualcomm’s RF front end business – the components that turn the information into radio signals – grew by 50% year-over-year in the first quarter. Rolland estimates the segment makes up 10% of Qualcomm’s overall business, amounting to what is now a run-rate of $600 million. Looking further down the line, in the long term, Qualcomm sees RF making up 20% of the company’s business.
The company has expanded its RF “revenue base” significantly, with recent technology advances in parts, such as power amplifiers, switches and antenna tuners.
Furthermore, some 5G networks will be powered by mmWave – the tech which makes it possible to move massive chunks of data at high speed over unused high-frequency bands. Qualcomm’s “integrated approach” gives it a competitive advantage as it provides the performance required to “meet complexity challenges at high frequencies.”
But 5G is not the only opportunity for the RF business, as Qualcomm is making strides in 4G, too. 5G is based on legacy 2G/3G/4G networks and Qualcomm has been able “to inherit legacy bands when winning 5G platforms at some customers.”
Summing up, the 5-star analyst said, “Qualcomm has defined the cutting-edge cellular standard by consistently ‘moving the goal posts’ in baseband capabilities for the last two decades. Every time a competitor matches Qualcomm’s technology, they quickly add important new ‘table-stakes’ features… We continue to believe the RF opportunity for Qualcomm is generally underappreciated by the Street.”
Rolland keeps a Positive rating (i.e. Buy) on QCOM, and raises the price target from $95 to $105. The implication for investors? Potential upside of 23% from current levels. (To watch Rolland’s track record, click here)
So, that’s Suquehanna’s view, how about the rest of Street’s take? The analyst consensus rates the chipmaker a Moderate Buy, based on 10 Buys, 6 Holds and 3 Sells. With an average price target of $91, analysts see a modest upside ahead. (See Qualcomm stock-price forecast on TipRanks)
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