Qualcomm, Inc. (NASDAQ:QCOM)

Beneffiting from iPhone sales, growth prospects look good.

Who doesn't love Apple pie

Another strong mobile growth play. Should benefit immensely as smartphones continue to grow.

Market Leader in Wireless Communication Technologies.

OUTPERFORM

http://www.fool.com/investing/general/2011/12/29/should-you-buy-sell-or-hold-this-mobile-chip-stock.aspx

Should You Buy, Sell, or Hold This Mobile-Chip Stock?

With a trillion-dollar revolution now beginning that will last for years, an investor can't help wondering about the best way to capitalize on the coming wave of mobility.

Component suppliers are among the more promising possibilities, even if they're somewhat hidden. The harder question to tackle is which suppliers to pick. Qualcomm (Nasdaq: QCOM ) is one of the most important chip and technology suppliers in the mobile space. Should you buy, sell, or hold Qualcomm?

Buy:

Intellectual property: Qualcomm is one of the largest holders of 3G technology patents. Virtually every 3G device made contributes to the company's royalty revenue, since its broad portfolio of intellectual property is unavoidable for 3G devices. We are now seeing wireless technologies transition from 3G to 4G, and Qualcomm also has patents on 4G standards LTE and WiMAX. It has less of a presence there, though, so 4G royalty rates tend to be lower than what it can garner from 3G.

However, emerging markets still have very low 3G penetration, so even after the U.S. transitions to 4G, there is still opportunity in growing areas such as China and India, among others. For example, according to figures released earlier this year by the National Bureau of Statistics of China, the world's most populous nation had 859 million mobile phone users last year (64% of the population), an increase of 112 million from the prior year. Only 47 million of those were 3G mobile users, representing 3G penetration of 3.5% of the 1.34 billion population as of the end of last year.
All that and a bag of chips: The bulk of Qualcomm's revenue still comes from selling chips and other integrated circuits, comprising 65% of sales in the just-finished fiscal year, with the remaining 35% from licensing. Qualcomm has been scoring handfuls of design wins, in part because of its integrated baseband approach. Its standalone baseband chip kicked Intel (Nasdaq: INTC ) -owned Infineon out of the Apple (Nasdaq: AAPL ) iPhone 4S this year. Apple uses its own custom ARM Holdings (Nasdaq: ARMH ) -based chips instead of Qualcomm's ARM-based Snapdragons.

Rival NVIDIA (Nasdaq: NVDA ) is also looking to integrate basebands into its own ARM-based Tegra processors, incorporating its $367 million purchase of Icera. NVIDIA's codenamed "Grey" member of the Tegra family is set to include an integrated baseband next year. The arms race between these two chipmakers continues to escalate, as NVIDIA's Tegra 3 is the first quad-core mobile processor, with Qualcomm's quad-core Snapdragon due out next year. Either way, Qualcomm is one of the clear leaders in mobile chips.
Sell:

Intellectual property: Relying heavily on intellectual property can also be a negative. Lawsuits are a reality for any company that monetizes patents, and legal costs can mount quickly and become distracting for management. By specializing in IP, the company needs to stay ahead of the curve in technology. R&D expenses rose 22% last year, and that trend will continue for the foreseeable future as standards progress. If Qualcomm fails to develop IP in relevant technological standards, it may eventually kiss its royalty revenue and R&D dollars goodbye.
Margins: While Qualcomm currently enjoys a healthy operating margin -- 33% last quarter, which is higher than NVIDIA's 19 -- there are a few looming factors that could cause Qualcomm's margins to take a precipitous hit. The aforementioned lower 4G royalty rates are one possibility. The company also sees average selling prices falling slightly in the coming year, which reduces its royalty revenue.
It expects ASPs between $197 and $209, lower than the range of $203 to $209 in fiscal 2011 and the range of $204 to $210 seen in the fourth quarter. Qualcomm has little say in retail pricing, which is left to OEMs and carriers. Competition from the likes of NVIDIA, Intel, Broadcom (Nasdaq: BRCM ) , and Texas Instruments (NYSE: TXN ) , among others, in the market for various mobile component chips can also hurt pricing power, further exerting downward pressure on margins.
Hold:

Valuation: Trading at 20.2 times earnings, shares aren't cheap. They're more expensive than NVIDIA's 13.5 multiple, but they've also put up better growth over the past five years. Qualcomm has grown its top and bottom lines by 14.7% and 13.3%, respectively, over that time period, compared with NVIDIA's 8.3% and negative 4.8%.
The verdict
Qualcomm is a buy. It has entrenched itself in a crucial role within the mobile supply chain, and that's not changing anytime soon. It will need to stay abreast of changing technological trends, but it has a long track record of doing just that.

The company is one of the best picks among mobile component suppliers, and I'll take it two steps further. Not only have I recently sold a bullish put spread on the shares in my personal portfolio (which has numerous component plays), but I will also go ahead and give it an "outperform" CAPScall today. Qualcomm really is the king of the mobile future.

goldman 2012

Set to pop in 2012! Lots of positive moves in dealing with weather related supply issues! Will shine in their sector!

Qualcomm's products are incredibly widespread, even in cell phones (not just smartphones). The growth of smartphones worldwide will give QCOM a big boost. But as the market matures and tablets grow in importance, Qualcomm will take a hit.

Tons of patents

werrrrrd

Qualcomm's PEG, trailing PE, and forward PE are selling at significant discounts to 5 year averages for each value indicator. Of the 117 firms within the Telecom. Equipment Subsector, Qualcomm is among the 14 companies that pay a dividend. Earnings have exceeded analyst estimates for each of its last 6 quarterly reporting periods. Currently undervalued.

QCOM will outperform within the next year on release of its 4G LTE 28NM chips to Verizon. As per VZW reps I have spoken with(I work in a store that sells phones), LTE technology is being adopted worldwide as the De-facto global standard for 4G wireless internet communications. In addition to this, QCOM also has their dual core snapdragon processors in almost every Android device, and provides CDMA chipsets to CDMA carriers(VZW). With AAPL scheduled to release the iPhone 5/4GS in 2012 with the smaller, battery saving 28NM process, QCOM is set to make record profits on the fastest iPhone yet, and cash in on the last project Steve Jobs intimately guided before his death. -- Note: I am long QCOM --

My nephew recommends this company based on its ubiquitious presence in the smartphone market.He's a bright young man.

Global leader in handset chips. For those of use who are not high tech, that means the brains of smart phones. My phone is definetely smarter than I am. Spells better too! As more and more of us use more and more smart phones or other like mobile devices, this company will continue to grow.

Also, no debt, lots of cash and a dividend that is almost 10X higher than it was 8 years ago. Hope to hold on to this one as tight as my 20 something kids hold their phones.

It could be entering a strong growth phase. Great balance sheet. Its new smartphone chips hit the fastest growing market segment. Strong margins, and it pays a nice dividend.

QCOM has it all, in a high growth market, innovative and continues to have extremely good growth.

as long as cell phones are in qcom will soar

Bloomberg Magazine made a compelling case. If QCOM hits it's mark in India, that could really good news. Get in before that happens.

QCOM is also a moat, diversified in several segments. A dominant player in 3G and 4G chips.

Don't like the valuations, however, I think the enthusiastic levels will continue to persist, especially if QCOM delivers the numbers.

-Lee