Qualcomm: A Strategic Turnaround Plan Will Help It ImproveQCOM) is seeing weakness in its business, which is why the stock has dropped over 26% this year. In fact, when Qualcomm released its results for the third quarter, its revenue was down 14 percent from $6.8 billion in the third quarter of 2014. Also, Qualcomm had declared third-quarter non-GAAP net income of $1.61 billion, down 35 percent from $2.47 billion in the third quarter last year.
Despite these weak results, I’m still confident about Qualcomm making a recovery going forward as the company is focusing on several areas at the same time to improve its business going forward.
Qualcomm has implemented a strategic realignment plan to allow the company to enhance its key strengths and deliver superior value for its customers and key stakeholders. The plan comprises of six major efforts. These include significantly optimizing its cost structure, re-examining structural and financial options that are present with the company that could create improved shareholder value, reiterating on its intention to return capital to the key stakeholders.
In addition, Qualcomm will add experienced directors to its board but lower the average period of its board, apart from linking executive compensation with their performance and shareholder return goals. Finally, the company will be investing strategically to enhance its leadership position and develop its key technologies and capacities.
Moving ahead, Qualcomm sees impressive growth projections till the fiscal year 2018 with global 3G/4G connections forecasted to exceed 5 billion by 2018, which is approximately 79% growth in just four years. Nearly three-quarters of this significant growth estimated from the emerging markets. In addition, smartphone shipments between 2014 and 2018 are forecasted to expand from 1 billion to 8 billion, opening up a bigger market for Qualcomm.
Qualcomm has successfully enhanced its chip business from offering just modems to offering a smartphone SoC platform with a range of advanced technologies. The company has also steered the change from CDMA by the launch of WCDMA and 3G and the continued advancement to 4G/LTE. Further, Qualcomm plans to drive the development of 5G next.
Qualcomm has recognized automotive, IoT, mobile computing and networking as the peak return generating areas and is expected to focus its core investments in these areas.
Analyst view and conclusion
The consensus estimate among 41 investment analysts that cover Qualcomm indicates that the company will outperform the market. This consensus rating has been in place for the past 11 years.
Overall, investors are advised to purchase equity in Qualcomm due to the company’s logical valuations with trailing P/E and forward P/E ratios of 15.01 and 11.58, respectively, depicting a value investment as compared to the industry’s average P/E of 19.28. The profit margin of 23.02% also seems impressive. Moreover, Qualcomm has a robust balance sheet since its cash position of $21.33 billion easily eclipses its debt of $10.91 billion, indicating the company is quite capable of making investments in its future product strategy or inorganic growth moves.
Published on Sep 17, 2015By Vinay Singh