Qualcomm (NASDAQ:QCOM) held what it called the “Future of 5G Workshop” at the end of September and the message seemed clear enough. The era of defining mobile services based on phones is ending. With 5G, mobile services connect to everything.
And I really mean everything. Factories will use 5G to automate maintenance. Cities will use 5G to automate traffic. You’ll use 5G to run your sprinklers. Your doctor will use 5G to monitor you.
The June quarter results for Qualcomm were dominated by the end of its legal struggle with Apple (NASDAQ:AAPL), a win that doubled revenues to $9.6 billion and brought $1.92 per share to the bottom line. Think of it as the end of an era.
Qualcomm expects a more “normal” quarter when it reports Nov. 6 — a profit of 70 cents per share on revenue of $4.7 billion.
But should you buy Qualcomm’s hype? Yes, you should.
The New Struggle
Qualcomm is selling the idea that 5G service is coming, that it’s going to be huge and that it’s going to be found not just in your phone and PC but in medical networks, in cars and throughout cities.
Qualcomm always pushes the legal and regulatory envelope. During the 2010s this meant guaranteeing itself a monopoly on mobile modem chips by tying licenses of its patents to purchases. Companies and governments around the world fought this monopolistic tactic and, for now, Qualcomm seems to have won.
For the 2020s the action shifts to the more friendly regulatory arena. Qualcomm wants 5G services to ride on paid, cellular networks. Open source advocates want them to ride on free networks like WiFi 6. Qualcomm is a member of many self-driving car groups, but not Autoware, the open source self-driving car group.
Qualcomm supports paid 5G services for moving the billions of bits necessary to keep such cars from hitting each other. That will mean paying network operators, as well as electric companies, for driving.
Room for Everyone?
WiFi handles three times more data traffic than licensed networks, and Cisco (NASDAQ:CSCO) doesn’t expect that to change.
In the last decade WiFi meant “free,” while cellular meant “paid.” That’s changing. Comcast (NASDAQ:CMCSA) has used the WiFi routers it gives customers to create its own paid wireless network. Integration between paid and free networks is happening through the WiFi Alliance’s Passpoint, which AT&T (NYSE:T) is connecting with. Korean cellular networks are already integrating WiFi into their operations.
At its September briefing Qualcomm emphasized the idea that there’s plenty of growth to go around among 5G, WiFi 6 and Bluetooth, and that every industry will learn to integrate Internet services into its machines. It is positioning itself as a WiFi 6 leader even as it prepares to support a replacement, called WiFi 7, five years from now.
That’s going to mean new — and smaller — cell towers. It’s going to mean a new generation of WiFi gear. It’s going to mean all your phones and PCs will be replaced, and that your watch will run on the same networks as your car.
The Bottom Line on QCOM Stock
The 5G business is currently at the peak of its hype cycle. There will be hiccups and headaches that cause current growth estimates to slow.
But wireless networking is at the heart of everything that’s going to happen with technology in the next decade. Universal cloud will connect to you without wires. That’s going to be a mixture of free and paid technologies. Qualcomm is poised to compete in the technology and chip sets for all of them.
For a long-term investor who can see well past the current recession, this makes Qualcomm a core holding. Ignore the market and make sure you have some.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental story, Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AAPL.
