Qualcomm: Is the Turnaround Still on Track?

I have been bullish on Qualcomm (QCOM) ever since the company hit its 52-week lows. Since my initial buy recommendation, shares of Qualcomm have appreciated almost 20% and while the company’s revenues are still falling, I think the stock still has a good amount of upside. I think investors should consider buying and the reasons for my assessment are mentioned below.

Why Asustek’s ZenFone 3 matters

In 2015, Qualcomm faced a severe downturn mainly because Samsung (SSNLF) kicked out its Snapdragon 810 processor from its flagship phones Galaxy S6/S6 Edge.
However, that was a story of the previous year as this year Samsung has used Qualcomm’s Snapdragon 820 processor to power its new Galaxy S7/S7 Edge (in some regions). This was possible because Qualcomm successfully eliminated the problems, such as heating problem, which were found in its predecessor Snapdragon 810 processor.

In the most recent quarter, Qualcomm’s licensing revenue was down 11. However, the company has inked various new patent licensing deals with Chinese companies in the prior quarter, which shows that the company is focused on growing that part of its business. Moreover, Chinese manufacturer Xiaomi can certainly provide a huge boost to the company’s sales in the approaching quarters as China accounts for the largest smartphone market around the globe.

The company’s strong strength in smartphone segment should also aid its IoT ambitious well; keeping in mind that so much of the more than trillion dollar market will be smartphone-based. On the other hand, Qualcomm’s efforts with smart cars and smart home solutions, and the Internet of Things will play a vital role in its turnaround.

Apart from this, one thing to worry for Qualcomm is that the company’s partnership with Microsoft (MSFT) is uncertain. Microsoft, in its most recent quarter, sold just 2.4 million Lumia devices, a drop of 5.87 million units as compared to the first quarter of 2015. However, that was the only bad part.

Recently, Asustek decided to use Qualcomm’s processor to power its new ZenFone 3 instead of Intel’s processor. Asustek has ordered 3-8 million Qualcomm’s Snapdragon 820 processor, which will considerably offset the revenue loss caused due to weak sales of Lumia devices. It is true that Qualcomm used to relish a vigorous top-line stream from delivering processors to Lumia Windows smartphones. But, Microsoft is gradually rescuing itself from the smartphone business and Qualcomm will need to find new ways to eliminate its dependence on Microsoft


Despite the concerns surrounding its deal with Microsoft, Qualcomm is still a very safe investment. Given the recent developments and its generous dividend yield, Qualcomm is a definite buy despite its recent rally.
Published on Jun 1, 2016
By Prudent Investor

Copyrighted 2020. Content published with author's permission.

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