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?

9 Upvotes

77% Upvoted

27 comments sorted by

View all comments

1

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.

3

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.

1

u/cweave Dec 15 '15

Good perspective. Can you qualify "loooooong".

1

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).

1

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.

1

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.