Among the large cap tech operators, QUALCOMM, Inc (NASDAQ:QCOM) has had one of the worst performances this year. Note that the shares are off about 21% to $51.80.
![Qualcomm, Incorporated (QCOM)](https://investorplace.com/wp-content/plugins/lazy-load/images/1x1.trans.gif)
Perhaps Wall Street has been overreacting. Maybe QCOM stock does represent a value here.
There is little doubt that the company has a treasure trove of technologies, which are backed up with thousands of patents. When it comes to the mobile industry, QCOM is the global standard.
It is important to keep in mind that the company is in the midst of transformation of its business – such as doubling down on the auto sector. Of course, the key to potemtial success is the $39 billion acquisition of NXP Semiconductors NV (NASDAQ:NXPI).
The company’s roots go back to the emergence of the chip industry during the 1950s and is a leading developer of high-performance mixed-signal electronics. This technology has proven effective for applications like connected cars, wearables, cybersecurity and the Internet of Things.
Now with the deal, QCOM will certainly gain some valuable assets, such as:
- More than 9,000 issued and pending patents
- Five wafer fabs across the globe
- About 11,000 engineers
- A customer base of over 30,000
Yes, there is a strong foothold in the auto sector. For example, NXPI has leadership positions in secure car access, auto MEMS sensors, in-vehicle networking and car entertainment.
QCOM Stock and Autos
QCOM is no slouch in the auto sector either. Keep in mind that – back in the 1980s – the company’s initial focus was on telematics systems for trucking operators. And, since then, QCOM has leveraged its cellular technologies to sell hundreds of millions of chips to allow for car connectivity, Bluetooth and infotainment.
The company also recently announced a technology called Cellular-V2X (the V2X stands for “vehicle to everything”). According to QCOM: “[The] technology complements other vehicle sensor technologies, extending a vehicle’s ability to ‘see’ further down the road and providing a higher level of predictability for enhanced safety and autonomous driving.”
All in all, the QCOM/NXPI deal looks like a winner. But, unfortunately, there are still some nagging issues. One is that the acquisition has run into stiff resistance from European regulators. What’s more, activist investors have been agitating for a higher price.
Although QCOM will probably take steps to get it done, there are some other issues that could prove even more nettlesome. First of all, QCOM is likely to face tough integration challenges. The company relies primarily on licensing of its technologies while NXPI is a manufacturer of semiconductors. So melding these two approaches will not be easy – and the process is likely to take time.
Next, the growth in the auto industry – which is based primarily on autonomous vehicles – is likely to take a while to reach critical mass. There are a host of complex and onerous safety regulations which require tremendous testing. Consider that it will not be until a few years from now that various automakers will start commercializing autonomous vehicles.
In the meantime, the market is getting saturated with competition. Just some of the fierce operators include Alphabet Inc (NASDAQ:GOOGL), Tesla Inc (NASDAQ:TSLA), NVIDIA Corporation (NASDAQ:NVDA) and Intel Corporation (NASDAQ:INTC). And yes, it also looks like Apple Inc (NASDAQ:AAPL) will make a play for the opportunity.
Bottom Line on QCOM Stock
In the near-term, the problem for QCOM stock is the cloud of legal uncertainty. The company’s core business model of licensing its IP (Intellectual Property) is under siege. Government authorities in South Korea, the EU and the US have brought complaints for unfair business practices. Then there is the $1 billion lawsuit from AAPL.
Gauging the impact of the litigation is not easy, but it will inevitably be expensive and time-consuming. And if QCOM does lose some of the battles, the impact could be severe. Note that about 80% of its profits come from licensing of its technology.
In other words, when it comes to QCOM stock, there should be no rush pick up shares.
Tom Taulli runs the InvestorPlace blog IPO Playbook and 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.