Qualcomm Should Continue Dominating the Mobile Market

Mobile chip giant Qualcomm (QCOM, Financial) released impressive results recently, beating analysts’ forecasts on both the top as well as the bottom lines. It reported a net profit of $1.58 billion, or earnings of $1.31 per share, an increase of about 42%. Also, the chipmaker witnessed a significant increase of 9.13% in its revenue to $6.81 billion.

The mobile chip giant had a remarkable quarter with its chip shipment or MSM chipset reaching all-time high to 225 million, on the back of strong broad-based demand for its 3G and multimode 3G/4G chipsets solutions in the emerging regions, especially in China during the quarter.

Can Qualcomm improve?

Looking forward, the company has demonstrated a fragile outlook for the fourth quarter due to the ongoing struggle with the Chinese Government, obstructing the company from collecting royalties in the near term on the full 3G/4G device demand.

The mobile chip giant still looks solid in China, despite the headwinds of getting license from the Chinese Government. The company has signed more than 70 single modes LTE license with Chinese OEMs, which is though not enough to collect royalties on all the three mode devices in China but are fairly at a good position to keep the momentum going.

Moreover, the company is aggressively engaged in active talks with the licensee in the region that looks in favor of the company. This dispute once resolved will lead to a great market share for the company gaining from the underlying growth opportunities in the region. But Qualcomm is not sure of the potential resolution that might affect the timing of its LTE launches in the country.

Nevertheless, Qualcomm looks solid on its semiconductor business that contributes a large portion of its sales. The mobile chipmaker expects its MSM chip shipment to rise approximately 245 million in the ongoing quarter, which is nearly 29% higher than the MSM chip set of 225 million the company reported in the quarter. Moreover, the company continues to see a healthy end user demand that is transitioning to 3G LTE in China, prompted by many other things. In fact, the company remains strong and expects that 3G/4G LTE device demand, excluding TD-SCDMA GSM devices for the calendar 2014, will be in the range of 1.22 billion to 1.3 billion devices, reflecting solid strength in both the developed and emerging countries.

Moreover, the China Mobile (CHL) has launched LTE service in more than 300 cities, with over 300 LTE device models and has observed solid surge in the data usages in ARPU from its LTE subscribers that will certainly benefit Qualcomm is investing heavily in China mobile to lead 4G long term evolution. Besides, the government has allowed trial licenses for LTE FDD in both China Unicom and China Telecom that should also benefit Qualcomm immensely.

These operators have launched hybrid LTD TDD and FDD trial networks in 16 cities and Qualcomm expects these trials to expand further to additional cities in the remaining period of the year.

Expecting better performances

Qualcomm is also expected to benefit largely from its QCT business unit. Its combined portfolio now offers extensive features like an array of high-performance with end to end solutions. Moreover, Qualcomm now remains on the track to commercialize its new low cost architecture with our Snapdragon 410. This should help the company to raise its competitiveness and improve its product costs.

Furthermore its QCT business segment is also strengthened by the launch of its first device based products on the Snapdragon 805 and fourth generation multimode 3G/4G modem the company initiated last quarter with the launch of Samsung Galaxy S5 broadband LTE-A. This Snapdragon 805 processor is the first mobile processor that will offer system level ultra HD support, 4K video capture and playback.

Wrapping up

Qualcomm currently trades at the forward P/E multiple of 13.65 against the trailing P/E multiple of 19.11, with PEG ratio of 0.96 for the next five years, shares relatively a cheap valuation and denotes a solid growth for the company going forward. In addition, the company has robust performance matrix with the profit and operating profit of 28.83% and 27.27% respectively. Also its wealth matrix on the other hand remains quite impressive with the ROE of 18.70% and ROA 9.41% respectively. This should help the company to deliver impressive growth in the future.