It hasn't exactly been an easy time to be a semiconductor company lately. A global chip shortage over the past couple of years caused lots of headaches for chip companies.
Add to that the fact that technology stocks in general have been weighed down because of high inflation and fears of a recession, and it becomes crystal clear why Qualcomm's (QCOM -2.53%) stock is down 23% over the past year.
That drop has caused some investors to wonder whether Qualcomm's stock is a good buy right now. To answer that question, let's take a closer look at what's going right with Qualcomm and what could hold the company back.
What's going wrong with Qualcomm?
Investors have been a bit skittish about Qualcomm for a couple of reasons, beginning with the fact that global smartphone sales have slowed recently.
IDC estimates that smartphone shipments declined 9.1% in 2022. Qualcomm makes a majority of its sales from the company's QCT (Qualcomm CDMA Technology) division, and that segment relies heavily on chips that go into smartphones.
The current smartphone slowdown will be a blow to Qualcomm's business. Management estimates that QCT sales will decline between 7% to 12% in the first quarter, on a year-over-year basis. That's down significantly from an increase of 28% in the fourth quarter to $9.9 billion.
Total revenue is expected to fall 10%, at the midpoint of guidance, to about $9.6 billion for the quarter.
As if that weren't bad enough, Qualcomm is likely a couple of years away from losing Apple as a key customer. Apple has been ramping up its shift to develop its own chips for its devices, and soon that will include modems that Qualcomm currently supplies for Apple iPhones.
What's going right for Qualcomm?
While all of the above is true, there are still a few reasons to be optimistic about Qualcomm right now.
First of all, while smartphone sales are stalling, there's some evidence that they could rebound in the coming years. Research firm Strategy Analytics says that in 2024, global smartphone sales will begin to reverse their current trend, and by 2025, smartphone sales will reach their pre-pandemic level.
The reversal will come as factories across the globe come back online, particularly in China. The country recently reversed its strict zero-COVID policies, which had shut down many parts of the country over the past two years.
And as good as it could be to see the smartphone industry rebound, Qualcomm is also making moves to benefit from other markets as well, particularly in the automotive sector.
A recent Qualcomm automotive investor day presentation showed that the company has $30 billion in the design-win pipeline for automotive companies. In other words, Qualcomm has designed a specific version of its chips for companies that could eventually reach that sales amount. More importantly, that figure is up by two times compared to its automotive chip design wins from 2021. The expanding automotive chip business comes thanks to vehicles requiring more complex technologies, as well as automakers ramping up production of tech-heavy electric vehicles.
Qualcomm is so bullish on its automotive chip prospects that management believes it will have a $100 billion total addressable market in this space by 2030.
Finally, while losing Apple as a modem customer won't be good for Qualcomm, the semiconductor company has known about the change for a while and still has plenty of time to plan for the transition. It's still a factor that investors should pay attention to, but if the company can benefit from expanding chip markets, like autos, then it could help offset losing Apple's business.
Qualcomm stock is a buy
Qualcomm's share price decline over the past year has opened up a buying opportunity for tech investors looking for a good deal. The company's current price-to-earnings ratio is just 11.5 right now, making the stock the cheapest it has been in years.
And with the company paying a dividend yield of 2.3%, investors are also getting a payout ratio that's one of the highest in the tech sector.
