Tech giant Qualcomm (QCOM 3.31%) makes leading modem chips for smartphones and owns the key patents in cellular technology. Qualcomm has also recently invested in new growth markets such as automotive and Internet of Things chips.
As a large technology blue chip stock, Qualcomm has also been a regular repurchaser of its own stock. But how effective have these repurchases really been?
$2.05 billion, but there's a catch
Qualcomm typically repurchases its stock in a consistent manner, buying back $2.05 billion over the past 12 months. Those buybacks also look well timed. Over the past 12 months, Qualcomm's stock is up 45%. So, those share repurchases look smart in the sense that Qualcomm bought back shares while they were undervalued.
However, Qualcomm's repurchases haven't been as exciting as at first glance.
First, Qualcomm's buyback history reveals a flaw many big companies make. Back when the smartphone market was booming in 2021, at the end of the pandemic, Qualcomm repurchased even more stock but at higher prices. Even though Qualcomm continued repurchasing stock when its earnings and stock fell, it wasn't as much because it had lower earnings at that time.
Ideally, companies would save cash when times are good so that they have more firepower to buy shares when times get tough. But it appears Qualcomm is merely returning whatever it makes regardless of stock price, choosing not to anticipate the inevitable cycles of the semiconductor industry.
QCOM Stock Buybacks (TTM) data by YCharts. TTM = trailing 12 months.
Shares have actually increased!
Moreover, Qualcomm's overall share count hasn't fallen over the past year but actually increased by about 1,000 shares, from 1,115 million to 1,116 million.
How can that be? Well, Qualcomm issues generous executive and employee stock-based compensation that nearly totaled as much as Qualcomm's stock repurchase. Moreover, Qualcomm has a program whereby employees can purchase stock. While Qualcomm receives cash from employee purchases, its share count still increases when that happens.
QCOM Shares Outstanding data by YCharts.
So, overall, Qualcomm's repurchases have effectively offset dilution to employees but really haven't materially lowered the company's share count for the past four years or so.
