by Tom Taulli | April 25, 2013 12:54 pm
Life’s not fair; at least not for Qualcomm (NASDAQ:QCOM), which saw a so-so earnings report greeted by a much uglier response.
In its fiscal second quarter, Qualcomm’s revenues increased by 24% to $6.12 billion, though earnings of $1.87 billion ($1.06 per share) were 16% worse year-over-year. Excluding items, profits of $1.17 per share were in-line with Wall Street forecasts.
QCOM’s competitive environment is getting more intense. For instance, Intel (NASDAQ:INTC) has been investing heavily in its mobile business, and the company has been snatching up some market share.
Qualcomm also saw a quarter-over-quarter drop in the average selling price per chip, from $227 to $217. This can be blamed on QCOM’s more aggressive stance in emerging markets, which tend to have less purchasing power.
True, these factors are worrisome, but investors might be overreacting a touch.
QCOM still is nicely positioned for strong top-line growth. According to Gartner, about 700 million smartphones were sold last year, which is an improvement of 44%. And it forecasts 20% annual growth through 2017, when it expects a stunning 1.7 billion smartphones to leave retailers’ shelves.
And smartphones are just one part of the market. Tablets and phablets continue to grow at hefty rates, plus there are emerging trends related to connected consumer products. General Motors (NYSE:GM), for instance, plans to include LTE connectivity with its 2015 Buicks, Cadillacs, Chevrolets, and GMCs.
That will translate into huge demand for core chips. QCOM has standout technologies in this field, covering areas like multimedia, display, connectivity, modem functionality, CPUs and so on. Qualcomm also has a diverse existing customer base, which includes companies like Apple (NASDAQ:AAPL), Samsung (PINK:SSNLF) and Google (NASDAQ:GOOG).
Plus, despite margins coming under pressure, QCOM seems capable of generating healthy cash flows. Flows improved from $1.88 billion in the year-ago Q1 to $2.2 billion this year, and the company also has a whopping $30.5 billion in the bank.
Combine its business prospects with a reasonable valuation of 12 times forward earnings and a respectable 2.2%, and QCOM looks less like a deservedly battered stock and more like a briefly discounted way to play the mobile revolution.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities, and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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