QUALCOMM, Inc. (NASDAQ:QCOM), which will report its quarterly earnings on January 29, is presently trading marginally below the 52-week high and at a PE of just below 19 times earnings. The company looks every bit a reasonable investment at an appropriate price level. The performance of stock depends upon the earnings call of the company, which is supposed to be out today.
Two growth pillars for Qualcomm
QUALCOMM, Inc. (NASDAQ:QCOM) basically derives its top and bottom line growth from its chip business and its cellular patent licensing business. Through its chip business, the company earns a major portion of revenue while licensing business adds to the profit. It will be worth watching how both the segments perform in the just ended quarter.
The semiconductor giant has seen massive growth in its revenue year over year by an average of 28% every quarter. For the September-ending FY2013, the company raised its revenue guidance twice last year and clocked in revenue at the higher end of the guidance.
Apart from the mobile device growth, which is a key catalyst in Qualcomm’s growth, increasing growth to 4G LTE in developed markets and the penetration of smartphones, in the developing geographies, has also left a positive mark on the average selling price. China and India are seeing increased 3G subscribers, which in turn proved beneficial for Qualcomm, in terms of collecting high margin royalties, in recent years.
Competition hurting margins
Gross margin for QUALCOMM, Inc. (NASDAQ:QCOM) has declined from 65% in the first quarter of 2011 to 59% in the last quarter owing to intense competition from rivals such as MediaTek, Nvidia and Broadcom.
The smartphone market is now reaching a saturation level, and network carriers like AT&T and Verizon are relying on subsidies to take up the margins. For the future, analysts are expecting that Qualcomm revenue will face some headwinds from an increasing mix of emerging markets sales depressing ASP levels for chipsets, as well as mobile devices.
For the financial year 2014, QUALCOMM, Inc. (NASDAQ:QCOM) has forecasted a growth of 5-11%, a decline from average revenue growth rate of 31% posted in the last three years. Also, Qualcomm is working to bring down its cost and increase the operating profits at a faster rate than revenues at some point in the second quarter.