Qualcomm, Inc. (NASDAQ:QCOM) has multiple catalysts ahead. The company already announced many of the positive developments yet the stock price hardly moved. The FTC’s antitrust case against the company is just beginning but improving fundamentals outweigh those risks.
An announcement from BlackBerry Ltd (NASDAQ:BBRY) and Qualcomm sent QCOM stock lower.
In an arbitration decision, Qualcomm will pay nearly $815 million to BlackBerry. The royalty over-payments will not hurt the relationship between the two companies, as both are vying to enter markets beyond smartphones. Therefore, QCOM stock investors should expect future collaborations and deals between the two companies despite the arbitration decision.
The Setback for QCOM Stock
Qualcomm stock relies on two markets for growth: QTI-Licensing (Qualcomm Technology Licensing) and QCT-Semiconductors. Last year, QTI generated $7.7 billion in revenue, while QCT made $15.4 billion in revenues. The mobile chip unit received a boost last month.
On Mar. 29, Samsung Electronics Co Ltd (OTCMKTS:SSNLF) selected QCOM’s Snapdragon 835 Mobile Platform to power its latest Galaxy device. The Galaxy S8 will be the first device on the market powered by the uniquely manufactured processor. Made on 10nm FinFET technology, the system on a chip (SOC) consumes 25% less power than its predecessor. It is also 35% smaller, but integrates a Snapdragon X16 LTE modem. Qualcomm’s chip not only provides computational power but also supports Gigabit LTE networking speed.
Gigabit LTE is the anchor of the 5G mobile experience. It is the next logical evolution for wireless devices after 3G and 4G.
Qualcomm Stock: Growth From Buying NXP
Strangely enough, markets barely reacted to the Samsung supply deal. Another positive development is U.S. approval of QCOM’s buyout of NXP Semiconductors NV (NASDAQ:NXPI). The combined company will generate revenue of $30 billion annually. Ahead of the deal, Qualcomm cut $1.4 billion in costs in fiscal 2016. After the deal is completed, the company expects to cut another $500 million in costs.
NXP Semiconductor also opens up QCOM stock’s market in cars. Intel Corporation’s (NASDAQ:INTC) buyout of Mobileye N.V. (NYSE:MBLY) suggests the next phase of growth for semiconductors is in chips used in cars.
Qualcomm expects each autonomous driving system (ADAS) will have $2,700 worth of technological content. Combined, they will supply everything from infotainment to in-vehicle networking.
But QCOM stock still faces some hardships ahead. The royalty dispute with Apple, Inc. (NASDAQ:AAPL) is a negative headwind for Qualcomm stock. Apple is ultimately disputing the amount it owes for the patents it uses. The courts could decide that QCOM should cut down the royalty rate for the intellectual property. That could risk setting a precedent for lower royalty rates for Qualcomm’s entire IP portfolio. It would explain why QCOM stock is relatively cheap, at under 12 times forward earnings.
Bottom Line on QCOM Stock
Qualcomm stock is very compelling for value investors. The stock trades at very low price-multiples. Yet the company is expected to grow earnings in the double digits over the next five years. The NXP acquisition does not threaten QCOM stock’s dividend, which yields over 3.75%.
Apple is not Qualcomm’s only customer, but if Apple wins its litigation, consumers will not likely see any benefit. The money saved will just get booked as profits for Apple. Still, QCOM must first defend itself from the Federal Trade Commission charges. If it wins, Qualcomm stock will probably soar past $60 a share, and it will be valued closer to its peers in the semiconductor space.
As of this writing, Chris Lau held shares of BBRY.