The Smart Money Is Bullish on QUALCOMM Stock
Most “Android” phones use QUALCOMM, Inc. (NASDAQ:QCOM) processors—that’s one of the most useful things to know about QCOM stock heading into the company’s quarterly results announcement. Simply put, QUALCOMM supplies processors to Samsung Electronics Co. Ltd. for its popular and powerful “Galaxy S7,” which, as you might have noticed, has been a sales success.
QUALCOMM stock is trading at approximately $55.00 per share, which places it in the high range of the past 52 weeks. QUALCOMM stock is trading a bit higher in expectation of its quarterly results, yet the company is also facing a huge fine in South Korea. Indeed, QUALCOMM stock should be trading lower by standard bourgeois logic, because it will more than likely be slapped with an $880-million fine. South Korea’s Fair Trade Commission has investigated allegations that QUALCOMM benefited from unfair competition. Thus, it risks being fined up to one trillion Korean won, or US$880 million. (Source: “South Korea may fine QUALCOMM up to $880 million,” Gsmarena web site, July 18, 2016.)
QUALCOMM Stock Should Have Dropped on News
QUALCOMM investors may have become accustomed to the fine, stoically accepting it as the cost of doing business. QUALCOMM, as it happens, has seen all of this before—in bigger doses. In 2015, QUALCOMM paid just shy of $1.0 billion for breaching China’s antitrust laws. (Source: “China Hits QUALCOMM With Fine,” The New York Times, February 9, 2015.)
Even if QUALCOMM stock were to drop because of the fine, it is still worth a closer look. QUALCOMM sales could be phenomenal and a slip in the stock price would only make it cheaper to get into.
The simple fact to remember about QUALCOMM is that the vast majority of Android smartphones rely on a processor that comes out of QUALCOMM’s factory. It single-handedly supplies almost half the Android smartphone market, from high end to entry level, according to a study by AnTuTu. (Source: “Antutu Report:Chip Performance Ranking &Distribution and Market Share,” AnTuTu, July13, 2016.) This means it dominates over such competitors as MediaTek Inc., Huawei Technologies Co. Ltd., and Samsung.
QUALCOMM has enjoyed more optimistic earnings estimates lately, which could indicate a consensus-beating result. Analysts are suggesting $0.86 per share. (Source: “Why QUALCOMM (QCOM) Might Surprise This Earnings Season,” NASDAQ, July19, 2016.)
These are bullish prospects indeed, considering that in 2015, QUALCOMM lost over a quarter of its market value. The upbeat earnings sentiment is not only based on smartphone sales, but also QUALCOMM’s ever-rising market penetration in the automotive sector. (Source: “QUALCOMM Partners Up With Audi and Offers a New Vision For Wi-Fi,” Fortune, January 5, 2016.)
Automotive and other sectors have helped QUALCOMM regain revenue after losing out to competitors peddling cheaper products and stagnating smartphone sales. Now, thanks to the renewed interest in devices like the Galaxy S7, which some say is the best smartphone on the market, QUALCOMM is back riding the crest of a wave. (Source: “Samsung Galaxy S7 review: Samsung’s awesome smartphone outsells iPhone 6s in US,” Alphr.com, July 21, 2016.) The S7 uses QUALCOMM’s “Snapdragon 820” processor.
Indeed, if there’s one word to explain the bullish sentiment on QCOM stock, it is “Snapdragon.”
QUALCOMM also makes the “Snapdragon 212.” It has voice recognition and original equipment manufacturer (OEM) processing, among other capabilities. It will be essential in powering the Internet of Things (IoT).
Virtual reality (VR) is another new area with huge sales potential where QUALCOMM has a solid footing. The “Snapdragon 821” is coming out just in time to supply new VR-capable phones. (Source: “QUALCOMM Introduces Snapdragon 821 Processor, Just in Time for New Nexus Phones,” Droid Life, July 11, 2016.)
The Bottom Line on QUALCOMM Stock
QUALCOMM’s Snapdragon 820 has dominated the latest top-of-the-range devices. But QUALCOMM’s heavyweight position in the market is also owed to its mid-range processors such as the “650” and “652.”
If QUALCOMM stock has not yet taken off on a bullish run, it’s because the U.S. chipmaker showed 24% lower earnings for the first quarter of fiscal year 2016. QCOM stock is definitely a tech stock to watch for the rest of this year.