For Qualcomm, the Party Is Just Getting Started

I have been calling Qualcomm (QCOM) a buy for the past few months. Due to the stock’s beaten-down valuation and the fact that it had rectified most of its mistakes of 2015, it was certain that Qualcomm would move higher. Recently, Qualcomm shared robust quarterly results. This was possible due to enhanced reporting from its enduring glitches with Chinese smartphone OEMs. The company’s sales surged 3.6 percent to $6 billion. On the other hand, the company’s revenue generated from the most significant QCT segment stagnated, but it relished profitability with EBT escalating to $365 million from $289 million.

In the reported quarter, Qualcomm surpassed analysts’ estimates on both fronts mainly because the consensus did not bake in the benefits from the LG Electronics license agreement engaged in April that comprised $235 million in revenue catch up from the last two quarters.

Furthermore, Qualcomm also proposed that another $200 million in catch-up revenue from other trivial providers was comprised throughout the quarter.
Qualcomm’s fourth quarter’s revenue guidance grounded on the low end of the yearly QTL guidance is one of the main reasons why I believe there is more upside left in store.

As a matter of fact, Qualcomm was badly hurt in the previous year mainly due to the failure of its Snapdragon 810 processor. Due to this, Samsung decided to use its own Exynos processor in place of Qualcomm’s Snapdragon 810 processors. Later, this problem it was solved by launching a new and highly efficient processor named Snapdragon 820.

However, Qualcomm has recently revealed its new Snapdragon 821 processor, the company’s other custom 64-bit ARM chip and successor of Snapdragon 820 processor. Furthermore, the company also claimed that this new processor will be around 10 percent faster than its predecessor, delivering speed up to 2.4 GHz and offering superior power savings as well as application performance.

Qualcomm’s 820 was the first processor to use the company’s custom quad-core Kyro architecture, and it apparently solved the overheating issue observed in its predecessor Snapdragon 810. As a result, in this new 821 upgrade, the company has made sure that its high-end chips fulfill the needs of high-end software as well as new VR apps in Samsung’s Gear VR.

Conclusion

Qualcomm has learned from its mistakes and although the stock may witness selling pressure after the recent rally, I think it has more upside left to offer. As a result, I think investors should consider adding to their Qualcomm positions at current levels.
Published on Aug 1, 2016
By Prudent Investor

Copyrighted 2016. Content published with author's permission.

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