Qualcomm First to Ink Sharp Deal

This is turning out to be one heck of a year for Qualcomm (NASDAQ: QCOM  ) shareholders. Its share price is up over 15% year to date, its world semiconductor sales rankings are poised to skyrocket for 2012, and now this: Qualcomm announced the completion of its much-anticipated investment in Japan's Sharp via its subsidiary, Pixtronix.

It's no secret Sharp has been in a bad way financially, openly courting outside investors in its effort to avoid bankruptcy (or worse). Qualcomm was rumored, along with Intel (NASDAQ: INTC  ) , to be a primary candidate for taking a partial ownership stake in return for access to Sharp's cutting-edge display technologies. As I mentioned recently, it's been Intel and Dell (UNKNOWN: DELL.DL  ) receiving all the Sharp investment-related press lately. Turns out Qualcomm's the first to pull the trigger.

The specs
Qualcomm's press release announcing the Sharp deal was conspicuously lacking in financial details. What Qualcomm did 'fess up to was it had expanded on its existing relationship with Sharp, and taken an equity position. According to Qualcomm, the acquisition will "take place in stages and the consummation of the transaction is subject to certain contingencies."

Not much help there. Thankfully, Sharp's press release was a little more forthcoming. According to Sharp, Qualcomm will invest up to $120 million for its equity stake, or half what Sharp is seeking from both Intel and Dell. So, what does $120 million buy these days? For Qualcomm, it's access to a low-energy-consumption, high-resolution display technology for mobile devices.

What Qualcomm gets
Qualcomm's investment will give Sharp working capital to establish a facility and jointly develop -- along with Qualcomm's Pixtronix -- the commercialization of its new display technology, IGZO. By most accounts, IGZO could be a game changer for mobile computing products, like Intel's Ultrabook, and Dell as it moves into mobile solutions.

The efficient use of power, and the ever-growing desire of mobile users for improved resolution, are exactly what IGZO brings to the table. Neither Qualcomm or Sharp shared expected timelines for mass production -- phase two of the development stage -- but for mobile users, it can't come soon enough.

As if Qualcomm needed more good news
Beginning with last month's fiscal Q4 earnings -- in which it reported record earnings, revenue, and chip shipments -- Qualcomm just keeps pleasing its shareholders. In what has been a dire year for most chip makers, Qualcomm continues to impress. The latest projections for 2012 semiconductor sales from industry research firm IHS places Qualcomm near the top of the heap.

Not surprisingly, most chip manufacturers in 2012 will have either lost market share or remained relatively stagnant. Qualcomm? According to IHS, Qualcomm should see a nearly 30% increase in worldwide sales, to just under $13 billion. Yes, gross sales are considerably lower than industry-leading Intel's expected $47.5 billion, or Samsung's $30.4 billion, but that's splitting hairs.

Though investors seem relatively ho-hum about today's announcement of its investment in Sharp, it's a good move for Qualcomm. Granted, $120 million doesn't buy an immediate game changer for Qualcomm, but I like the notion of exploring additional revenue alternatives going forward, and Sharp's technologies offer some intriguing opportunities.

Going forward
With over $12 billion in cash on the balance sheet, the $0.25 a share quarterly dividend paid to shareholders of record Dec. 4 is kind of paltry. Its 1.6% dividend yield significantly trails its peers', and is well behind Intel's 4.6%. At over 20 times trailing earnings, Qualcomm appears relatively expensive, too. Ericsson (NASDAQ: ERIC  ) and NVIDIA (NASDAQ: NVDA  ) , two others firmly entrenched in the mobile-chip business, each trade at 15 times earnings.

But looking back when analyzing the prospects for Qualcomm doesn't do it justice. As the IHS study demonstrates, as does its recent investment in Sharp, Qualcomm is all about the future. And the view for investors is looking very, very good.

Intel's position in the PC microprocessor arena is unrivaled. However, that market is maturing, and Intel finds itself in a precarious situation longer term if it doesn't find new avenues for growth, like mobile computing. In this premium research report on Intel, our analyst runs through all of the key topics investors should understand about the chip giant. Better yet, you'll continue to receive updates for an entire year. Click here now to learn more.


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