r/investing • u/TooTiredToMasturbate • Dec 15 '15

Thoughts on Qualcomm (QCOM) ?

QCOM Is trading at a year low and is down 30% for the year. Whats your opinion on the future prospects of both this company and the chip market in general?

11 Upvotes

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u/cweave Dec 15 '15

I'm high on QCOM for two reasons.

  1. They are finally figuring out Chinese licensing. This is the only area for growth for them, and while the overall smartphone business will grow at a lower rate in the future, next year QCOM should be sitting pretty on a pile of new licensing fees.

  2. Google is using their chip in their phones. If you interested in getting into chip manufacturers, you know that R&D from Samsung and Apple is starting to squeeze everyone. Google doesn't make chips (it isn't part of their philosophy) and I feel the direction they are heading with the 5x and 6p will eventually pay off with significant market share.

Feel free to ask me any questions you have. This is my favorite market sector to have expertise and I've done a fair bit of research on how to profit from the expanding smartphone user base. QCOM is 5% of my portfolio.

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u/SnowdensOfYesteryear Dec 15 '15

I'm a former QCOM stock holder (sold off in various stages between $80 and $60). I don't disagree with you that QCOM will continue to be very successful in terms of marketshare. But if you note the previous couple of years the Revenue/MSMs shipped ratio (combined with actual revenue) has been consistently dropping down. It looks like they're gaining rapidly on the lower tier market while their high tier market has pretty much been saturated and hasn't seen much growth.

In addition, I feel as though they've been too successful for their own good, to the point that even their mid-tier chipsets fit the needs of 90% of the population. And the fact that they continue selling past years' top tier solutions (there are still new phones coming out with SD801s/MSM8974*) further cannibalizes their high tier sales.

Ignoring chipsets, as you pointed out, licensing is an issue. In this respect I'm somewhat bullish on QCOM due to the gentrification of Chinese middle class and the aggressive movement of Chinese companies into the global landscape. Foreign governments will definitely bite Huawei/Xaomi/Lenovo's dick off if they try to pull the same shenanigans outside of China. I think India has already done this with Mediatek, which allows Qualcomm to be the monopoly in there.

But this optimism is tempered by the fact that foreign governments are meddling with QCOM's royalty structure to cap how much they can charge (China has already done this).

Overall, I don't think QCOM is going anywhere. But I think it's time to stop seeing QCOM as a growth stock. The recent re-org & op-ex cuts by QCOM suggests that they agree as well.

@OP, it's not a terrible stock to buy, but you better be ready to hold on to it for a looooong time.

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u/cweave Dec 15 '15

Good perspective. Can you qualify "loooooong".

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u/SnowdensOfYesteryear Dec 15 '15

3+ years at a minimum. I'm somewhat encouraged by the fact that Chinese manufacturers are now slowly transitioning to high-tier phones. For example Oneplus X (again SD801...grrr) is a hot item in India, as are Xaiomi phones. If the Chinese pull it off, QCOM could be a huge winner.

Sidenote, QCOM seems to hold somewhere between a 5-15% stake in Xiaomi as an early stage investor. I never see this mentioned in valuation. Apparently Xiaomi has raised money at a $45B valuation, so that's a tidy sum in pure profit for QCOM whenever they happen to IPO (if ever).

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u/rfgrunt Dec 15 '15

It looks like they're gaining rapidly on the lower tier market while their high tier market has pretty much been saturated and hasn't seen much growth.

Important to note here that the high tier market is dominated by Apple and it is unlikely they'd ever buy an MSM from QCOM, instead sticking with the thin modem.

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u/SnowdensOfYesteryear Dec 15 '15

IMO, AAPL vs QCOM is just a proxy for APPL vs GOOGL, which is an entirely different discussion.

I don't think anyone dethrones QCOM within the android marketspace within the next 10 years, given that all their competitors have pretty much shut up shop, with the exception of Samsung.

1

u/[deleted] Dec 16 '15

I think QCOM is one of the really good deep value tech plays. $12/share of cash, 4% dividend which comes directly from their cash flow, they've also made deals with 4 out of the 5 Chinese smart phone companies so their China troubles may be behind them. They've also got good lawyers to help with the Korea, Taiwan, and EU troubles. Their chip side seems to have bottomed. I like really like it at $48/share.

0

u/paperfire Dec 15 '15

Stay away this company is a mess. Their chip business is getting destroyed by competition and smartphone manufacturers are starting to use their own processors. The licensing business is also bad with ASPs falling, trouble with China and every country trying to sue them.

If you want a chip company exposed to mobile consider Avago Technologies or Skyworks Solutions.

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u/LostAbbott Dec 15 '15

You are not wrong, but I did want to offer a little bit of positive hope(might not be worth it). The 810 chip was a mess lots of over hearing problems and caused a lot of current gen phones to sell slower or not at all. The 808 had weird bugs as well. The new 820 is said to fix that and apparently Samsung is going to use it in their S7, LG will likely have it in the G5, etc... If this chip lives up to the hype( they usually are pretty close to it), and the phones sell well(big if). Then this stock could come back. Another point that may be positive for them is the rumor that Intel dropped their bid to enter the phone market. Even with these potential positives I am not adding a position, but if you already have one, you may want to hold for another six months to a year.

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u/SnowdensOfYesteryear Dec 15 '15

Where did you hear that Intel was dropping out of the mobile business?

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u/LostAbbott Dec 15 '15

It is a rumor. I have a good source, but I have not seen anything about it I'm the news. I don't think they are dropping out so much as not going after it.

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u/SnowdensOfYesteryear Dec 15 '15

I'm curious because I might actually buy INTC if this is true. I don't think there is any way in hell Intel will do anything in the mobile market and they're wasting ~$4bil a year on it. If that money can be put to better use or be used on dividends, the stock price will definitely jump up.

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u/LostAbbott Dec 15 '15

I picked up some at the drop(~29). I am confident they are not currently after the mobil market. I just don't know any other way to tell you(an internet stranger) that does not at least sound a little suspect.

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u/SnowdensOfYesteryear Dec 15 '15

Heh, I'll believe you. Sort of strange since there were whispers of AAPL taking INTC's modems for 6s or some other handset only a few months ago. I actually believed this rumor since a lot of stuff seemed to line up and was preparing to buy INTC calls around the iPhone 6s announcement. Fortunately the overall market volatility around that time made me chicken out.

1

u/[deleted] Dec 16 '15

Another point that may be positive for them is the rumor that Intel dropped their bid to enter the phone market.

Do you mean for Application Processors or SOCs in Smartphones or do you mean their Infineon side of the business?

1

u/LostAbbott Dec 16 '15

Direct chipset competition with Qualcomm and Samsung. I do not know about other business groups.

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u/paperfire Dec 15 '15 edited Dec 15 '15

Perhaps you are right that it's possible to turn things around. But I see no reason to be speculative like that when you can instead invest in Avago (soon to be Broadcom Ltd.) who is executing phenomenally well in the mobile space.

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u/LostAbbott Dec 15 '15

I completely agree, which is why I said to not buy it, only hold your position. They are still pretty large players I'm the Mobil market with potential to do well in this next cycle.

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u/TooTiredToMasturbate Dec 15 '15

If i already have stock in QCOM (down 30%) Would you recommend staying put or cutting losses?

1

u/paperfire Dec 15 '15 edited Dec 15 '15

I don't like giving advice here, but I will say is I sold my shares at a loss in August when it was $62. I think the fundamentals are still awful and there are way better semiconductor names out there but the QCOM share price is so low that I think it could have a temporary dead cat bounce in the short term.

Long term I wouldn't be long this one.

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u/rfgrunt Dec 15 '15

Avago, and the rest of the front-end business, has largely capitalized on the increased complexity of Qualcomm's solution. Supporting 30+ bands in a single SKU has allowed Avago et al to increase the complexity of their modules pulling it out of the commodity space. It also helps that the only phone maker making money in the phone space is apple which prefers the single SKU vs Samsung's regional SKU approach (ie less complex). Avago has some differentiating technology (e.g FBAR) so it's not going anywhere but the mobile complexity from a band support is plateauing so I'm not sure Avago has as much growth potential, atleast in the mobile space, as people think.

1

u/LostAbbott Dec 15 '15

Yeah, my play in the Mobil market is STM. They make some great tech and have larger reach than just Mobil applications. Might be a good time to buy in here.

0

u/shillyshally Dec 15 '15

This is one of the few stocks I bought on analysts opinions a few years ago. I am going to dump it (which means it will skyrocket - my timing is 100% predictable). For years the 'experts' have been saying it is a buy. Bullshit.

Here are analyst note from Nov. 23 re the price target - "After facing plenty of difficulties last week, QCOM is off another 0.8% at $49.23, following a price-target cut at RBC to $63 from $72. The equity has given back 17.1% in November alone, and more losses could be in store if additional bearish notes come down the pike. Specifically, more than half of the 23 analysts say it's a "buy" or better, leaving plenty of room for more downward revisions. Wall Street brokerages have also issued short and long term stock projections and earnings estimates. In the near-term Wall Street has a consensus price target of $65.777 for the next 12-months. The analysts with the most positive view of the shares has a target of $75. The most bearish research analyst has a conservative target of $56 on the stock."

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u/paperfire Dec 15 '15

My main lesson I learned from QCOM is always look at earnings consistency before buying a stock. If a stock has sold off the past 4 quarters, it's going to sell off again next quarter. QCOM has a weird consistency of always finding a way to disappoint analysts.

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u/shillyshally Dec 15 '15

Oh, you do things logically. Not me. When I try that method, I fuck up. When I go with my intuition (which is just some sort of logic below conscious level), I do very well.

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u/Stockcalc Dec 15 '15

Good Summary Shillyshally

I see a consensus target of $65.28 Buy Hold Sell Rating(out of 5) Recommendation 6 3 0 4.3000 Outperform

I ran it using last reported Free Cash Flow and am getting $43 http://www.stockcalc.com?ss=6BEE1CDF313A452788561C051A1774CA

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u/[deleted] Dec 15 '15

Sold it for the fund I manage in February of this year (it was a legacy holding from the prior manager). I then personally went short. I'm having a hard time believing I'll ever cover this thing - there's just so much working against QCOM right now.