Qualcomm (NASDAQ:QCOM), a stock that has been whipsawing over the last year thanks to its pursuit of NXP Semiconductors (NASDAQ:NXPI) and Broadcom’s (NASDAQ:AVGO) pursuit of it, has now put both failed mergers in its rearview mirror and is free to fly into the world of 5G.
Knowing the importance of the wireless technology, and Qualcomm’s place in it, analysts are upgrading the stock and it is approaching the highs it hit when Broadcom first moved on it last November.
Carriers are starting to tout the benefits of 5G, which could deliver wireless carriers speeds equivalent to wired ones, and allow the rapid introduction of self-driving cars and other intelligent products.
Qualcomm, too, has begun pounding the drum for its 5G technology and is positioning itself as the American champion for 5G against China.
Apple Peace?
While Qualcomm has been focused on maintaining its independence and its fight with Apple (NASDAQ:AAPL) concerning the value of its patents, it may now be ready to perform with products rather than just talk about how the profits will be apportioned.
Fights over patent rights have been sending Qualcomm sales down for four years now, but there are indications in Asia that peace may be at hand. If Apple peace does break out, it would bring billions of dollars out of escrow into Qualcomm’s coffers, more than QCOM stock brought in during its most recent quarter.
Even without that, Qualcomm’s most recent quarter easily beat analyst estimates, the company reporting earnings of $1.04 per share, against a “whisper number” of 76 cents per share. Its next quarterly report, due Oct. 24, is expected to show earnings of just 69 cents per share on revenue of $5.53 billion.
While it seems on the surface that Apple and QCOM are at one another’s throats, with Qualcomm trying to prevent Apple’s imports of iPhones using Intel (NASDAQ:INTC) modems, the growing China trade war will put enormous pressure on U.S. companies to stop fighting and start working together, in order to overcome what the cellular industry now says is a Chinese lead in delivering the technology.
While the U.S. side has been fighting over rights, China’s players have been cooperating, and could wind up becoming the world’s largest 5G market.
5G Opportunity
Once 5G is installed, the whole world of communications will change.
Not only will wireless and wired services compete on an equal basis, but devices rather than human beings will be the connection target. The amount of data being moved could increase by 1,000 times, speeds could increase 100 times, batteries could last 10 times longer and latency could also decline dramatically.
The market for 5G chipsets, estimated to be worth $2.03 billion in 2020, could be worth $22.4 billion in 2026 , as the technology is integrated into self-driving cars, security networks, factories and homes.
The speed of 5G will allow artificial intelligence applications to work more quickly, and on larger data sets. It is the key to economic competitiveness in the 2020s, and the current fights are getting in the way of the race starting.
Patent Peace in Our Time for QCOM Stock
If you buy QCOM stock today, you’re betting that peace will break out in the U.S., on terms Qualcomm can live with, and that this growth can begin unencumbered by legal wrangling. Legal peace would bring back those “hockey stick” graphs, the ones showing enormous growth and societal change, which the patent war has put on the shelf.
This would also make Qualcomm stock, now selling at less than five times last year’s revenue of $22.3 billion, look very cheap indeed.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
