Mobile Explosion Powers Qualcomm

1/9/2012


  Recent Price
$55
  Dividend
$0.86
  Yield
1.6%
  P/E Ratio
17
  Shares (millions)
1,716
  Long-Term Debts as % of Capital
1%
  52-Week Price Range
$59.84 - $45.98

Qualcomm ($55; QCOM) helps feed the world's insatiable hunger for data transmitted to smartphones, tablet computers, and e-readers. Its semiconductors process mobile e-mail, Internet, and videos.

Global wireless connections grew 14% to 5.9 billion in the 12 months ended September, and Qualcomm expects that number to reach 7.6 billion by 2015, with four billion smartphones sold between 2011 and 2015. The company envisions a world where everything from dishwashers to heart defibrillators will contain Qualcomm semiconductors.

In fiscal 2011 ended September, Qualcomm delivered 32% higher sales, while cash from operations rose 20%. For fiscal 2012, management targets earnings per share of $3.42 to $3.62 (implying 7% to 13% growth) on revenue of $18.0 billion to $19.0 billion (20% to 27%). The stock is a Buy and a Long-Term Buy.

Business breakdown

In 1989, Qualcomm introduced Code Division Multiple Access (CDMA), one of the two primary commercial technologies used to transmit audio or data over radio waves from wireless devices. Today, companies that use CDMA technology — such as mobile-device makers — must purchase licenses from Qualcomm. Licensing generated 36% of the company's revenue in fiscal 2011. According to Qualcomm, worldwide shipments of CDMA-based handsets rose 28% in the 12 months ended September, well ahead of the estimated 12% gain for all wireless platforms.

Qualcomm sells semiconductors used in mobile devices, wireless networks, desktop computers, televisions, and Blu-ray players. Semiconductors and system software accounted for 59% of sales in fiscal 2011.

In each of the last six years, Qualcomm has poured at least 20% of sales into research and development. From that investment, Qualcomm has created a new transmission technology for use in fourth-generation connections and other advanced networks. The company hopes to stake out a licensing position for the next wave of wireless products similar to the one it enjoys with current platforms.

International customers and licensees accounted for 94% of Qualcomm's revenue in fiscal 2011, with 32% coming from China, 19% from South Korea, 17% from Taiwan, and 8% from Japan. HTC and Samsung each contributed more than 10% of revenue in fiscal 2011, potentially leaving Qualcomm exposed to Apple's ($411; AAPL) far-reaching patent lawsuits. But at the same time, each iPhone 4S contains about $14 to $15 of Qualcomm components.

Conclusion

Net cash exceeds $6 per share, roughly 23% of the share price. At 17 times trailing earnings, shares trade 29% below their five-year average. Excluding net cash, Qualcomm's trailing P/E is 15.

Qualcomm yields 1.6%, and its dividend has kept growing along with sales over the past five years, both rising at an annualized rate of 14%. Qualcomm typically announces dividend hikes in March. An annual report for Qualcomm Inc. is available at 5775 Morehouse Drive, San Diego, CA 92121; (858) 587-1121; www.qualcomm.com.

QUALCOMM
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Sep '11
0.82
vs.
0.58
+ 39%
55.44
-
45.98
19 - 15
Jun '11
0.86
vs.
0.51
+ 34%
59.48
-
52.13
23 - 20
Mar '11
0.73
vs.
0.54
+ 30%
59.84
-
50.10
25 - 21
Dec '10
0.80
vs.
0.50
+ 25%
55.00
-
44.62
26 - 21
           
Year
(Sep.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2011
14.56
2.83
0.74
59.84
-
42.45
21 - 15
2010
10.99
2.09
0.83
49.80
-
31.63
24 - 15
2009
10.42
1.69
0.60
48.72
-
28.16
29 - 17
2008
11.14
2.02
0.52
56.88
-
30.87
28 - 15
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
92
91
44
90
94
77
70

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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