Qualcomm (NASDAQ:QCOM) heads into 2020 with the wind at its back and a stock price that has jumped more than 50% this year thanks to the settlement of its long-running legal dispute with Apple (NASDAQ:AAPL). The good times, though, may not be over for owners of QCOM stock.
There are several reasons why I am cautiously optimistic about QCOM.
First, the maker of smartphone chips is reaping the benefits of its early investment in 5G. Qualcomm reports that multiple OEMs around the world are using both the company’s Snapdragon’s core chipset and its modem-to-antenna RF front-end solution in their latest headset models. During the latest quarter, QCOM had 230 5G design wins, up from 150 in the latest quarter.
QCOM Strengths Go Beyond 5G Smartphones
QCOM and outside experts are forecasting a rebound in global smartphone sales in 2020 as 5G is deployed. The company sees shipments of between 175 million and 225 million of the next generation devices. Tech research firm IDC estimates 2020 shipments at 190 million, roughly 14% of all smartphones that are sold. During the first year of sales in 2010, 4G devices made up 1.3% of all smartphones shipped, according to IDC.
5G isn’t the company’s only strength. The company’s telematics business also seems promising. According to the Qualcomm, its pipeline from automakers and Tier 1 customers has increased from $5 billion to almost $6.5 billion since the start of the year. QCOM will benefit from the growth of the Internet of Things (IoT) devices. Remember that Alexa smart speakers and smart refrigerators are the only the first innings of this technology
Yes, There Are Risks
To be sure, there are lingering concerns about the company’s patent license business, which is both under investigation by the Federal Trade Commission and locked in a long-running dispute with China’s Huawei. According to experts, if the FTC wins its case QCOM’s patent licensing business would be seriously undermined.
Keep in mind that QCOM has a staggering 144,000 patents and patent applications for 5G. Gains in QCOM’s patent business off-set the double-digit declines in chips in the latest quarter, so the company has a huge incentive to settle both the FTC case and the Huawei dispute.
The other QCOM issue I wanted to flag is about Apple. The iPhone maker in July agreed to buy Intel’s 5G smartphone modem chip business for $1 billion. While AAPL will use QCOM’s gear in the first generation of 5G phones, it probably will want to use its own technology as the devices become more advanced. Where that leaves QCOM over the long run is hard to say, though it probably isn’t good.
For now, I am giving a tentative thumbs-up for QCOM stock, which currently trades at about a 14% discount to its average 52-week price target. As my fellow InvestorPlace contributor Tom Taulli noted last month, QCOM is very shareholder-friendly when it comes to stock buybacks. The company also pays a 3% dividend yield, one of the highest in the technology business.
As of this writing, Jonathan Berr doesn’t own any of the aforementioned stocks.
