Qualcomm: Still a Good Buy?

Qualcomm (QCOM) announced first quarter of fiscal year 2016 ended December 27, 2015 total revenue of $5.8 billion and near the upper end of the revenue guidance range for the quarter of $5.2 to $6.0 billion, up 6% sequentially from$5.5 billion in fourth quarter of fiscal 2015 but down 18 percent year-over-year from $7.1 billion in first quarter of fiscal year 2015. Going forward, Qualcomm has also provided revenue guidance for second quarter of fiscal 2016 and forecasts revenue to be in $4.9 billion to $5.7 billion range.

Gradually improving

Qualcomm declared first quarter of fiscal 2016 non-GAAP net income of $1.47 billion or $0.97 per diluted share, up 3 percent sequentially from $1.43 billion or $0.91 per diluted share in fourth quarter of fiscal 2015 but, down 35 percent year-over-year from $2.26 billion or $1.34 per diluted share in first quarter of fiscal 2015.

The key mobile technology company reported continued year-over-year decline in both its top and bottom lines, primarily due to the weaker company sales but, top and bottom lines improved somewhat and sequentially mainly driven by better than expected company sales for 3G/4G devices and gains achieved from notable cost-optimizations executed during the period.

Qualcomm is impressively minimizing the overall costs and it already has $1.4 billion of cost cutting plan well under execution and includes, several fresh license contracts signed in China as a strategic cost control initiative.

Strong growth

The MSM chip shipments for Qualcomm grew 19 percent sequentially to 242 million units in the first quarter of fiscal 2016 from just 203 million units in fourth quarter of fiscal 2015.
However, MSM chip shipments declined 10 percent year-over-year from 270 million units in first quarter of fiscal year 2015. Going forward, the company estimates second quarter of fiscal 2016 MSM chip shipments in the range of 175 million to 195 million units.

Qualcomm seems to be focused on optimizing its overall cash position by minimizing the non-core expenses while growing the strategic MSM chip shipments sequentially which was somewhat offset by year-over-year decline in these key chip shipments.

The net registered device sales for the quarter which is declared as per Qualcomm licensees illustrated solid growth over the years and including, over 295 CDMA-based licensees, more than 250 WCDMA-based licensees and over 170 royalty-depicting single-mode OFDM/OFDMA licensees. The wireless technology company has projected to achieve worldwide 3G/4G device shipments in the range of 1.67 billion to 1.77 billion devices, a year-over-year growth in the range 7 to 13% from approximately 1.54 billion to 1.58 billion devices projected to be shipped all through the fiscal year 2015.

Shareholder friendly

Qualcomm is observed to be having a solid track record of returning a majority of the invested capital to its key shareholders in form of dividends or through strategic share repurchase programs. Therefore, the technology major has returned a total of $49.9 billion to the shareholders as of December 27, 2015 and concluded the additional $10 billion of share repurchase program declared last March. Further, Qualcomm still has $4.9 billion worth of share repurchase authorization remaining under its current share buyback program which is in line with its continued commitment to deliver impressive shareholder returns.

The notable global growth in innovative devices sales for Qualcomm highlights the strength of the company’s robust sales channel and this significant sales expansion has primarily encouraged the company to increasingly offer attractive and sustainable shareholder returns.

Importantly, the Board of Directors at Qualcomm Incorporated recently declared a 10 percent expansion in the quarterly cash dividend of the company to $0.53 from $0.48 per share of its common stock payable after March 23, 2016 and thus, increasing the yearly dividend payment to $2.12 per share on the common stock.

Qualcomm Life, Inc., a subsidiary of Qualcomm and UnitedHealthcare has recently collaborated to make and implement connected healthcare solutions to customers in the US. This key program targets on delivering innovative healthcare programs by incorporating the advanced medical devices, wearables and diagnostic tests leveraging Life’s 2net™ Platform of Qualcomm for enabling medical-grade connectivity.

Qualcomm and Ericsson have lately signed an agreement for the joint development of 5G technology and allow for its timely commercial release.

The key mobile and wireless technology provider is significantly focused on expanding its global technological presence by uniquely collaborating with other key services provider to automate their services and drive sustainable long-term growth.

Conclusion

Overall, the investors are advised to “Buy” equity in Qualcomm Incorporated considering the company’s solid financial position with significant total cash of $16.53 billion against smaller total debt position of $10.95 billion, encouraging the company to make future growth investments while, delivering attractive shareholder returns. The profit margin of 20.02% also seems impressive. The PEG ratio of 1.06 indicates healthy company growth and comparable to the industry’s growth average of 0.98.
Published on Mar 10, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

Posted in ...