Qualcomm – A Rising Phoenix or Falling Dragon?

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Jan 28, 2015

The San Diego-based technology company Qualcomm (QCOM, Financial) is a leading player in the telecommunication and semiconductor business. The company has invested intensively in research and development, especially in 3G and 4G wireless technologies, which are being used and rolled out across the world today – developed and developing countries are both embracing these new technologies for advancement in communications. The company manufactures a plethora of products, such as tracking devices, semiconductors, satellite phones and device displays. The company is divided into 3 units. The first unit is QCT (Qualcomm CDMA Technologies). The second unit is QTL (Qualcomm Technology Licensing) and the third unit is QSI (Qualcomm Strategic Initiatives).

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Taking a look at Qualcomm’s performance

Qualcomm stock is currently trading around $71 per share with a 52-week high of $81.97 per share and a low of $67.67 per share. The price-to-earnings ratio of the company stands at 15. The company’s current revenues stand at $26.49 billion, which is up by 7 percent in comparison to the previous year. The operating income stands at $7.55 billion and its net income is $7.97 billion, up almost 16 percent since last year. Qualcomm stock currently has earnings per share (EPS) of $4.65, up 19 percent from 2013 – a respectable increase from the previous year’s earnings.

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Could legal hassles endanger the company’s future performance?

Despite its impressive financial showing, Qualcomm has been confronted with an antitrust lawsuit in China, which could possibly see it paying fines to the tune of $1 billion – a significant payout that could hurt the fortunes of the company. Qualcomm is also being scrutinized under the Foreign Corrupt Practices Act.

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An unsustainable business model or just a temporary hiccup?

Today, a major chunk of business comes from developing countries. However, most of the developing countries buy cheaper, locally developed phones, which do not use Qualcomm semiconductors. Qualcomm has hugely invested in R&D – this can prove to be quite an issue if the products developed are not commercially viable or cannot be adopted easily. The smart phone market is evolving continuously and a technology, which is in demand today, may be obsolete in a couple of months. Today’s phones rely on multiple technologies and not just CDMA – technology that has been pioneered by Qualcomm. However, most of the major mobile device manufacturers such as Apple (AAPL, Financial), Samsung (SSNLF, Financial), Microsoft (MSFT, Financial), Motorola (MSI, Financial), LG (LG, Financial) and HTC (HTCXF) still use Qualcomm semiconductors in their devices.

The path ahead for Qualcomm

The company has established a benchmark for wirelessly charging vehicles know as HALO. This could form the backbone of futuristic vehicles.

Its Push-to-Talk service, QChat, is being rolled out across mobile service providers worldwide. Mirasol displays developed by Qualcomm, uses the adjoining ambient light as the main basis of illumination consuming considerably less power than other phone displays available in the market.

Most countries are rolling out 3G and 4G plans and this continues to provide significant opportunity for Qualcomm. Qualcomm is also actively targeting the data center market, which has huge potential for growth. QTL (Qualcomm Technology Licensing) has a huge portfolio of intellectual property and will continue to be a major contributor to the profits of the company – as long as the division performs well, the company is likely to rise upward, despite temporary setbacks.

Considering everything, investors should note that Qualcomm appears to have a bright future and the next few years will prove to be decisive for the company’s fortunes.