QUALCOMM, Inc. (NASDAQ:QCOM) stock has rebounded about 21% since early February, when the stock hit rock bottom after several months of declines. Investors pummelled QCOM stock last year on fears of declining market share, competitive pressure from lower-end rivals, and Samsung Electronics Co Ltd’s (KRX:005930) decision to forego the chipmaker’s “Snapdragon” processor in favor of its own for Samsung’s flagship phone. When all was said and done, QCOM stock declined about 30% in 2015.
Given its underperformance in 2015, QCOM stock is hoping 2016 fares much better. And so far, it looks like it might live up to that premise. On February 22, the company announced that its chip will be back in Samsung’s flagship phone, the “Galaxy S7,” which was released a couple of weeks ago.
This should provide a much-needed revenue boost for Qualcomm. In the company’s latest quarter, revenue was down about 18% while earnings took a hit, down 25%. But being back in Samsung phones will only provide so much growth. Where else is growth going to come from?
It looks like Qualcomm is going to jump on the virtual reality (VR) bandwagon. And I don’t blame the company.
According to a research note from Goldman Sachs, virtual reality could become an $80.0-billion industry by 2025 (Source: “Virtual Reality Could Become an $80 Billion Industry: Goldman,” CNBC, January 14, 2016.) Of that $80.0 billion, $45.0 billion will come from hardware sales and $35.0 billion from software sales.
Of course, that $80.0 billion figure is likely to waver depending on how fast consumers adopt VR. If they rapidly adopt the new technology, that figure may reach an enormous $182 billion. On the other hand, if growth is sluggish, the market may only see about $23.0 billion in sales. (Source: “Virtual Reality, Real Profits: 11 Great Stocks To Play The Coming VR/AR Boom,” Forbes, January 17, 2016.)
With that information, it’s no surprise that Qualcomm is making a big push into VR. Last week, the mobile chipmaker giant announced a new virtual reality software development kit (SDK) for the “Snapdragon 820” processor, its latest and most powerful chip. Some of the features of the kit include the digital signal processor sensor fusion, which the company claims will optimize the VR immersive experience. Other capabilities of the kit also include rapid transformation of rendered images in 3D spaces to cut latency in half, and stereoscopic rendering for improved graphics and video.
The SDK will enable software makers to create content, such as games, 360-degree VR videos, and a variety of interactive education and entertainment applications using Snapdragon 820 VR-compatible “Android” smartphones and headsets.
Qualcomm’s SDK for virtual reality will provide a VR experience using mobile devices, which means graphics won’t be as complex as, say, an “Oculus Rift” VR headset, which requires a high-end desktop computer. But the advantage of VR via a mobile device is that it has a much lower price point. And that will be good news for Qualcomm.
Samsung “Gear” VR headsets, for example, convert the Galaxy S7 phone into a full-blown virtual reality headset and the Snapdragon 820 chip will be used in some models of the Galaxy phone.
The Bottom Line on QCOM Stock
This is just the beginning of Qualcomm’s leap into virtual reality. The company claims that it developed the Snapdragon 820 chip with virtual reality in mind, so this was pre-planned. Qualcomm also says that it is going to continue to implement VR-specific technologies into its upcoming “Adreno” graphics cores, CPU cores, and “Hexagon” digital signal processors. If VR takes off, QCOM stock may follow suit.