The thousands of pieces of information thrown at investors can be daunting. Analyzing balance sheets, poring over comparable financial measures such as earnings multiples and cash flows, and assessing management can make studying stocks a laborious task. However, lost in the information overload of company information is that a buy and sell decision on a particular company can often be defined by a single question or theme.
With that in mind, in this series we're looking at the one key theme to examine for some of the most popular stocks around. Today, we're digging deeper into Qualcomm
The one thing to know about Qualcomm: The rumors of 3G's death have been greatly exaggerated
Qualcomm makes its living off licensing and royalty fees in the mobile world; its licensing profits are nearly twice as large as its booming semiconductor business is. The company is well positioned to continue collecting revenues as next-generation LTE (4G) networks roll out, and it also commands the highest licensing rates from 3G networks.
Uncertainty about Qualcomm's position in a world transitioning to 4G data networks and falling phone prices cratered the company's share price midyear. However, as 2010 dragged on, mobile-phone prices rebounded, in large part thanks to booming smartphone sales and the continuing popularity of high-end (read: expensive) Android phones from Motorola, Samsung, and HTC. The growth of Android provided a double boost to Qualcomm, as the company has become a dominant force in selling the processors in phones powered by Google's
However, one area that has received less attention in 2010 is 3G's continuing resilience. While Verizon's
- T-Mobile has upgraded its 3G network so much that it now promotes it as having 4G speeds.
- Verizon recently announced that it's upgrading its network to allow simultaneous use of data and voice. The inability of Verizon's network to handle voice and data had long been a selling point for AT&T
, but with the iPhone probably coming to its network, Verizon is investing in an upgrade to solve the issue once and for all. (NYSE: T)
- AT&T continues to roll out "HSPA 7.2" updates across the country. The company hopes that the upgrade, which promises to double download speeds, will help solve some of the network bottlenecks AT&T has seen recently.
Keys to the takeaway
The key factor here is that wireless companies are investing in 3G to make it viable well into the decade. It takes a significant investment to roll out a new generation of technology, and carriers will probably find it economical to focus on building out urban cores with 4G networks and serving less densely populated areas with 3G connections.
That means that smartphones and other mobile devices will include the ability to connect to 3G networks well into the decade, providing Qualcomm with higher licensing rates and thus higher levels of profitability longer than many investors are expecting.
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