Many investors identify AMD as Intel's (NASDAQ:INTC) biggest rival. After all, the two chipmakers are the only producers of x86 CPUs in the world, and together they hold a duopoly in the PC market.
However, a far more disruptive rival is Qualcomm (NASDAQ:QCOM), which conquered the mobile chip market. Intel's loss of the mobile CPU market to Qualcomm haunts the chipmaker to this day as it searches for new ways -- like selling baseband modems -- to profit from smartphone sales.
Yet Intel's stock rallied nearly 40% over the past 12 months, compared to Qualcomm's 13% gain. Let's dig deeper into both chipmakers to see which stock is a better buy at current prices.
How do Intel and Qualcomm make money?
Intel is the world's top maker of PC and data center CPUs, which together generated 85% of its revenues last year. The rest came from sales of Internet of Things (IoT) chips, non-volatile memory chips, and programmable chips. Intel splits these businesses into the PC-centric (PC chips) and Data-centric (data center, IoT, memory, programmable) categories.
Qualcomm is split into two units -- the chipmaking (QCT) and licensing (QTL) businesses. The QCT unit, which generates most of Qualcomm's revenues, sells its Snapdragon SoCs (system on chips). The QTL unit, which generates most of the profits, leverages Qualcomm's wireless patent portfolio to earn licensing fees and royalties from every smartphone maker in the world.
How fast is Intel growing?
Intel's revenue and non-GAAP earnings rose 6% and 28%, respectively, last year. Its PC-centric revenues grew 3% to $34 billion. Its data-centric businesses, which generated $28 billion in revenues, fared much better -- with 11% growth in data center chips, 20% growth in IoT chips, 37% growth in memory chips, and 14% growth in programmable chips.
For the current year, Wall Street expects Intel's revenue and earnings to rise 4% and 3%, respectively.
Major catalysts for Intel this year include the launch of its eagerly anticipated 10nm Cannon Lake chips, the introduction of its 10nm Ice Lake chips, the introduction of new Xeon Phi CPUs which are optimized for machine learning in data centers, and a potential entrance into the discrete GPU market.
Intel is also selling an increasing number of computer vision chips (through its subsidiary Movidius) to makers of drones and autonomous cars, and developing an autonomous driving platform with its subsidiary Mobileye, BMW, and Fiat Chrysler. These investments in next-gen technologies could pay off over the next few years.
How fast is Qualcomm growing?
Qualcomm's non-GAAP revenue fell 1% last year, and its earnings dropped 4% on the same basis. QCT revenues rose 7% to $16.5 billion, but its QTL revenues fell 16% to $6.4 billion and wiped out its chipmaking gains.
Qualcomm's weak QTL growth was caused by big antitrust fines in South Korea and Europe. South Korean regulators claim that Qualcomm's cut (up to 5% of the wholesale price of a smartphone) is too high. European regulators, meanwhile, claim that Qualcomm's prior exclusivity deal with Apple (NASDAQ:AAPL) for producing the iPhone's modem was anticompetitive. Taiwanese regulators fined Qualcomm on similar grounds as South Korean regulators last October.
Qualcomm also faces multiple lawsuits from Apple, which sued the chipmaker over unpaid exclusivity rebate payments and its licensing practices. Apple ordered its suppliers to halt all licensing payments to Qualcomm, and could replace all Qualcomm components in future iDevices. Analysts expect these headwinds to cause Qualcomm's revenue and earnings to slide 4% and 21%, respectively, this year.
However, Qualcomm is still trying to close its takeover of NXP Semiconductors, which would make it the top automotive chipmaker in the world. But at the same time, it's trying to fend off a hostile bid by Broadcom. All this drama paints a murky picture of Qualcomm's future.
Valuations and dividends
Intel trades at 14 times its 2018 earnings estimate, while Qualcomm has a higher forward P/E of 18.
Intel pays a forward dividend yield of 2.5%, and it's raised that dividend annually for three straight years. Qualcomm pays a forward yield of 3.5%, and it's hiked that payout every year since it started paying a dividend in 2003.
The winner: Intel
I'm not a huge fan of Intel due to the sloppy way it handled the Spectre and Meltdown flaws earlier this year. But it's still a better investment than Qualcomm, which faces big fines from regulators, an escalating battle with Apple, and uncertain outcomes for its takeover of NXP and its battle with Broadcom.
Intel's growth figures are also headed in the right direction, and the stock is still cheap -- which makes it a better overall investment than Qualcomm.