Qualcomm (NASDAQ:QCOM) is the world's leading provider of silicon for mobile devices. Its Snapdragon processors, as well as its stand-alone Gobi modems, power just about every relevant LTE smartphone on the planet today. However, it's no secret that over the next year the company has to combat a couple of headwinds. First, the saturation of the high end is forcing Qualcomm to become much more competitive at the low end (this space is dominated by MediaTek). Second, at the high end, the company will begin to face competition from Intel during 2014 (although the extent of this as far as handsets goes remains to be seen) and others such as Broadcom near the end of the year.

With these forces in mind, and with the company's recent fiscal year 2014 guidance falling flat against expectations (at least on the top line), Qualcomm still has a couple of powerful weapons it can use to help deliver long-term shareholder value even in the face of the competitive and secular headwinds it now faces with its chip business.

Did somebody say buyback?
As a fabless semiconductor company that derives the vast majority of its income from a very stable patent royalty stream, the company is able to drive a rather robust amount of free cash flow. Indeed, over the last twelve months, Qualcomm has generated a whopping $7.73 billion in free cash flow (which suggests that Qualcomm isn't expensive at just under 12 times EV/FCF). The nice thing here is that the company has roughly $30 billion in cash and marketable securities, so the company can clearly afford to channel a good deal of its free cash flow into returning cash to shareholders (either via buybacks or dividends).

The nice thing about companies opportunistically buying back stock is that these buybacks – particularly if they're aggressive – can be used to drive the share price up by simply introducing demand pressure for the shares. More importantly, though, buybacks usually reduce the number of shares outstanding (although it is important to watch for management teams that simply buy back stock to offset dilution from share based compensation) which drives up earnings per share for any given net income level.

Qualcomm, in particular, bought back over $3 billion of stock last quarter and committed to "at least" $4 billion in repurchases during the coming fiscal year. While this isn't gigantic with respect to the company's cash on hand, this does represent about half of the company's expected free cash flow for the year. On top of that, the company will return approximately $2.5 billion via dividends during the year.

Qualcomm's push into the low end could strengthen
While the company will start to see some high-end competition next year, it continues to strengthen its position in the low end. The big problem here isn't competitiveness against MediaTek (Qualcomm can use the same off-the-shelf ARM IP as well as its own home-grown designs), but instead cost structure. Qualcomm, on the earnings call, noted that it would be specifically be reworking designs to sport better cost structures. If Qualcomm can pull this off and successfully compete and gain further share at the low end of the smartphone market, then that could be a rather nice win.

Can't ignore the competitive threats, however
The elephant in the room really is the competitive threats at the top. While NVIDIA's (NASDAQ:NVDA) Tegra 4i and Broadcom's upcoming integrated LTE + apps processor will not be high-end focused designs, and while Intel is MIA with an integrated apps processor and modem of its own, the very high end can be serviced by discrete applications processors and modems.

NVIDIA's upcoming "Logan" coupled with its Icera i500 discrete modem is a competitive threat, as will Intel's Merrifield paired with the firm's XMM 7260 LTE-Advanced modem. Broadcom's discrete LTE-Advanced modem has been pushed out to the second half of 2014, but that part could also be competitive in the market.

The point, though, is that a big part of Qualcomm's success in the chip business has been due to the fact that it has been the only game in town for a couple of years now. If the competition is successful at making inroads in this space, this could drive both margin compression and share loss. That being said, Qualcomm is large enough and has major scale so as to emerge a "survivor" from a highly competitive environment, but it's not getting any easier.

Foolish bottom line
Qualcomm is a top notch mobile chip company. That being said, it seems likely that as the business growth slows and competitive pressures mount, the company will turn to more aggressive capital allocation strategies to continue to deliver value to shareholders. There's no shame in that, as all companies eventually mature -- and Qualcomm is no different.