Qualcomm's Long-Term Prospects Are Still Intact

Despite weak performance in the second quarter, Qualcomm can get better.

Jun 25, 2014 at 2:00PM

Qualcomm (NASDAQ:QCOM) has appreciated steadily so far this year, despite reporting weaker-than-expected second-quarter results in April. The chipmaker faced a slowdown because of slow smartphone sales in China. However, the hiccup should be temporary, as Qualcomm is expected to benefit from the deployment of LTE in China by China Mobile (NYSE:CHL). Moreover, since rival Broadcom (NASDAQ:BRCM) has pulled out of the cellular baseband business, Qualcomm might find the going a bit easier.

Prospects in China
The company is seeing strong demand for its multi-mode 3G LTE chipset solutions, especially in the Chinese market where budget phones are popular. Looking ahead, Qualcomm expects stronger sales in China with the rollout of LTE. The company expects growth to pick up pace in the near future, as it has invested heavily in chipsets for LTE devices in China.

China Mobile's aggressive rollout will be a growth catalyst for Qualcomm. China Mobile is planning to expand its network coverage nationwide to more than 350 cities. To achieve this target, it will build 500,000 LTE base stations by the end of 2014. Moreover, China Mobile will start providing discounts on LTE smartphones to further fuel growth.

China Mobile expects shipments of LTE handsets to hit 200 million units this year, and since it is playing its part to drive adoption, Qualcomm should benefit. The chipmaker has seen robust LTE designs win momentum with OEMs in China, driving demand for its multi-mode LTE chipsets.

Although Qualcomm has experienced low penetration rates in 4G LTE so far, adoption is still in early stages in China. It is expected that Qualcomm's business will rise gradually with the rapid growth of smartphones in the country, driven by its low-cost chipsets.

According to Gartner, approximately 1.9 billion smartphones will be shipped worldwide in 2018, while cumulative smartphone shipments between 2014-2018 will hover around 8 billion. Qualcomm expects to benefit from this secular growth as the company sees strong 3G/4G device shipments going forward.

Product development
To tap the smartphone market, Qualcomm has expanded its product portfolio. It has more than 100 single-mode 4G OFDMA licenses, including 60 in China, and nearly 255 CDMA-based licenses across the world. This should enable it to benefit from the secular growth in smartphones. 

Qualcomm's CDMA technologies segment offers comprehensive chipset solutions such as CDMA, UMTS, GSM, and LTE technologies for all types of smart devices in 3G and 4G networks. Its combined portfolio now offers extensive features such as an array of high-performance, end-to-end solutions ranging from Wi-Fi, GPS, Bluetooth, FM, and Ethernet, which should help boost sales.

Qualcomm's Wi-Fi business is growing at a healthy pace. The chipmaker witnessed a robust yearly growth of 45% in Wi-Fi shipments in the previous quarter. The company has more than 350 802.11ac Wi-Fi designs, including more than 250 in mobile. Qualcomm has announced its next innovation in Wi-Fi, with a comprehensive set of products that use multi-user MIMO to make the 802.11ac networks more efficient, delivering an improvement of up to three times in throughput.

Broadcom's exit to take some pressure off
Qualcomm's strong product innovation should help the company strengthen its position in the baseband market, to a great extent. Since rival Broadcom has decided to exit this market, Qualcomm will now have to contend with fewer competitors. Earlier this month, Broadcom announced it is exploring strategic alternatives for its baseband business. Broadcom's exit is a result of rising competition in the baseband industry, and the company expects to save approximately $700 million as a result of the sale.

Broadcom has spent nearly $3 billion in research and development on cellular basebands in the last seven years, according to Forbes, but never earned a profit. However, the company did land a few design wins with key smartphone players such as Samsung, so its exit should aid Qualcomm's long-term prospects.

The bottom line
Although Qualcomm's recent results were not up to the mark, the company's long-term prospects look intact. Growth in the Chinese smartphone market, and innovations in Wi-Fi technologies, will help the company get back on track. Investors should have confidence in Qualcomm, as it looks like a solid pick.

Will this stock be your next multi-bagger?
Give us five minutes and we'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Mukesh Baghel has no position in any stocks mentioned. The Motley Fool recommends China Mobile. The Motley Fool owns shares of Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers