QCOM: The ‘Q’ Stands for ‘Quality’

by Tom Taulli | November 8, 2012 11:26 am

While it has been a tough earnings season for chip operators like Intel (NASDAQ:INTC[1]), Texas Instruments (NASDAQ:TXN[2]) and Advanced Micro Devices (NYSE:AMD[3]), it looks like the wind is at Qualcomm‘s (NASDAQ:QCOM[4]) back.

Qualcomm reported a blowout fiscal Q4 last night, and the stock is up more than 6% on strong volume in Thursday morning trading.

Revenues jumped 18% over the year-ago period to a Street-beating $4.87 billion, and earnings increased 20% to $1.27 billion, or 73 cents per share. Backing out special items, the company earned 89 cents per share, easily topping analyst estimates of 82 cents.

No doubt, Qualcomm is getting a huge boost from global markets. For the year, the company has added more than 20 new Chinese licenses for its technology, which now total north of 220. QCOM also has gotten traction in other emerging markets, such as Brazil.

Another pleasant bit of news from Qualcomm is that it appears to have overcome a nagging headwind — shortages of key components. CEO Paul Jacobs said the company has increased its supply of 28-nanometer manufacturing capacity.

But what really lifted investors’ spirits Thusrday was Qualcomm’s future prospects. The company expects to generate Q1 revenues of $5.6 billion to $6.1 billion, with the low end matching the consensus, and it expects to earn $1.08 and $1.16 per share, better than $1 EPS forecasts. Full-year 2013 revenue forecasts of $23 billion to $24 billion also trounced Wall Street expectations set at $21.8 billion.

Making all those numbers even more impressive is that Qualcomm even factored in a slowing economy when making its forecasts.

The simple fact is that consumers and businesses alike now consider mobile phones to be necessities, and they’re much more hooked on accessing rich media at ever-faster speeds.

Good news for Qualcomm, whose technologies focus on precisely that. The company has extensive intellectual property on 3G and 4G systems, which are at the core of global mobile networks. They also are key to on-device chips, such as for Apple (NASDAQ:AAPL[5]), Samsung (PINK:SSNLF[6]) and Nokia (NYSE:NOK[7]).

Despite a fairly up-and-down year, QCOM shares have managed to claw out roughly 13% gains year-to-date (including Thursday’s advances), slightly beating the market. However, the stock still trades at a reasonable forward price-to-earnings ratio of 14.

But more importantly, the real attraction for investors is the long-term potential. The adoption of smartphones is a megatrend, and while America seems much closer to capacity, the trend is in its early stages depending on where across the globe you’re looking. Research firm Gartner said 300 million devices were shipped worldwide in the first half of 2012, up 45% from the year ago, and more than two-thirds better than the volume of PCs shipped during the same period.

Throw in a dividend that currently yields a modest 1.7%, but has been increased steadily since payouts began in 2003, and Qualcomm looks like a great long-term play on mobile.

Tom Taulli runs the InvestorPlace blog IPOPlaybook[8], a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook.[9]“ Follow him on Twitter at @ttaulli[10]. As of this writing, he did not hold a position in any of the aforementioned securities.

Endnotes:
  1. INTC: http://studio-5.financialcontent.com/investplace/quote?Symbol=INTC
  2. TXN: http://studio-5.financialcontent.com/investplace/quote?Symbol=TXN
  3. AMD: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMD
  4. QCOM: http://studio-5.financialcontent.com/investplace/quote?Symbol=QCOM
  5. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  6. SSNLF: http://studio-5.financialcontent.com/investplace/quote?Symbol=SSNLF
  7. NOK: http://studio-5.financialcontent.com/investplace/quote?Symbol=NOK
  8. IPOPlaybook: http://investorplace.com/ipo-playbook/
  9. How to Create the Next Facebook.: http://www.amazon.com/gp/product/1430246472/ref=s9_simh_gw_p14_d0_i1?pf_rd_m=ATVPDKIKX0DER&pf_rd_s=center-3&pf_rd_r=0GRB6ZMCTYDZVNG7Q7NV&pf_rd_t=101&pf_rd_p=470938811&pf_rd_i=507846
  10. @ttaulli: https://twitter.com/ttaulli

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