Is Qualcomm Set to Soar Higher?

– By Naman Shukla

Qualcomm (QCOM) holds a robust position in the mobile chip market, as its chips are currently used in high-end devices like the Samsung Galaxy S7 Edge. But the company is now placing its emphasis on other markets like the Internet of Things, as it is projected to grow at a rapid pace in the upcoming years.

On the other hand, the company’s revenue is headed in the same direction. In the fourth quarter, the company shared earnings per share of $1.28, 15 cents greater than the analyst estimates, whereas its revenue came in at $6.20 billion, surpassing the estimates by $360 billion and representing a surge of 13.8% year over year.

However, the primary reason behind the company’s shifting focus is slowdown in the growth of the smartphone market. According to statista.com, the smartphone market will possibly reach its peak by 2018 and thereafter start moving downward.

Seeing the positive outlook of the Internet of Things market, Qualcomm is making several key acquisitions that might help the company fortify its position in technology’s next big thing. The Internet of Things market is still at an early stage and Qualcomm has ongoing plans to acquire NXP Semiconductors (NXPI) for $47 billion. If the deal goes through, Qualcomm will gain a strong lead over its competitors.

Moreover, this deal could also aid the company in combatting higher costs and pricing pressure, which have worn out profit margins in the chip industry due to declining demand for smartphones and PCs.

Presently, the company has already shipped over 340 million chips to almost 20 auto manufacturers worldwide. Furthermore, the company has played a role in the formation of the 5G Automation Association, which permits it to develop and test communication solutions.

Apart from this, Qualcomm and Microsoft (MSFT) recently partnered to introduce ARM-based CPUs for Windows devices. It looks like Qualcomm is intending to enter the low-end PC segment where its Snapdragon 835 series could provide tough competition to rivals like Intel (INTC).

Though nothing can be said at this particular moment about the success of Snapdragon 835, it is highly likely that it will allow Microsoft to strengthen its position in the low-priced segment, which is also a plus for Qualcomm.

Conclusion

In order to tackle the growth slowdown in the smartphone industry, Qualcomm has made a smart move by diversifying its revenue stream. Keeping in mind the forthcoming opportunities the company’s new market signifies, it will be sensible for investors to continue holding the stock for long-term gains.

Disclosure: I don’t hold a position in any of the stocks mentioned in the article.

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This article first appeared on GuruFocus.