Good Outlook for QCOM Stock
QUALCOMM, Inc. (NASDAQ:QCOM) stock has been trading in a range between $51.00 and $52.00, the highest values of 2016. But where is the growth coming from? Well, Qualcomm is benefiting from its growing technology portfolio in the automotive sector. (Source: “Qualcomm Partners Up With Audi and Offers a New Vision For Wi-Fi,” Fortune, January 5, 2016). It seems cars will transport QCOM stock to higher plateaus, away from its five-year low price level from last February of $43.00.
Admittedly, Qualcomm stock lost almost 27% of its market value in just one year. The company sold fewer components because of increasing competition from cheaper manufacturers amid somewhat stagnant (relative to the initial breakneck pace of innovation) smartphone offerings. Still, the market for Qualcomm is heading in a bullish direction again. The vastly increased use of processors in the automotive sector, the Internet of Things, and virtual reality has generated renewed demand for higher-end products.
Qualcomm can now look forward to significant revenue growth thanks to demand from multiple industry sources. Merrill Lynch analysts have maintained their “Buy” rating on QCOM stock with a $75.00 price target, a 50% upside from the stock’s current price. (Source: “Merrill Lynch Bullish on Two Tech Stocks: QUALCOMM, Inc. (QCOM), Microsoft Corporation (MSFT),” Smarter Analyst, March 10, 2016.)
Qualcomm’s new “Snapdragon 820” processor has captured interest and sales from top smartphone manufacturers. The company’s new chips for the automotive sector and “Android” smartwatches have also helped boost QCOM stock so far in 2016. (Source: “2016 starts on a positive note for Qualcomm,” Gulf News, March 10, 2016.) Qualcomm has also introduced the “212 Snapdragon” processor, which offers OEM processing capability, voice recognition, audio, and video. This is an essential component for the smart home and the “Internet of Things” (IoT) market.
As innovative as Qualcomm’s processors are to IoT and special car options, Qualcomm’s main visibility comes from smartphones. Samsung’s “Galaxy S7” has revived its hybrid approach, splitting its processors for home and smartphone. Qualcomm has a long experience in the design of processors; Samsung does not. Thus, the company has decided to adopt the Snapdragon 820, which the Korean company regards as being more powerful than its own. Samsung has always been pragmatic in its technical choices. It always adopts the best solution, whether its own technicians or outside suppliers conceive it.
In 2015, Qualcomm stock and sales suffered because of heat and power problems compromising the “Snapdragon 810” processor. Samsung, Qualcomm’s biggest client, experienced the problems first-hand with its S6 smartphones. (Source: “Qualcomm Finally Speaks out about Samsung and Snapdragon,” Forbes, May 2015.)
The Snapdragon issues did not detract customers. Qualcomm’s processors have such characteristics that they have become indispensable to luxury carmakers. Ever-tougher automotive competition means that companies must increase the number of special features to sell vehicles. During the Consumer Electronics Show this year (CES 2016) in Las Vegas, Qualcomm announced that Audi has chosen its “Snapdragon 602A” processors to equip the automaker’s vehicles starting in 2017. (Source: “Qualcomm’s Automotive Chips Power Audi Infotainment,” Tom’s Guide, January 11, 2016.)
The growing market penetration of virtual reality (VR) is also a profit opportunity for Qualcomm. Sony is the latest big player to announce a VR offering. The company will launch a VR-capable “PlayStation” product that will become available for sale next fall.
Yet, virtual reality is complex and energy-intensive. Manufacturers must find the right compromise between performance and fuel consumption. Qualcomm’s Snapdragon 820 reconciles these constraints, offering an ideal solution for VR on smartphones.
This gives it leverage not only with Samsung, but also with its competitors, such as LG and Xiaomi, whose respective “G5” and “Mi 5” products have VR capability. (Source: “Samsung, LG focus on better cameras, VR to help reignite smartphone sales,” The Toronto Star, February 21, 2016.)
Industry analysts see virtual reality as one of the factors that will revive smartphone sales. I see it as one of the factors working in Qualcomm (QCOM) stock’s favor.