Introduction
Qualcomm Incorporated (QCOM) is a high-quality A+ rated blue-chip Dividend Contender that appears to possess all the characteristics that a prudent dividend growth investor could ask for. The company has no debt on its balance sheet and offers a current dividend yield over 3% that has grown on average by 19% per annum since fiscal year 2005. Due to recent operating weakness, the company is available at a blended P/E ratio of 12.8 and is expected to grow earnings long-term (3-5 years out) at 14% per annum.
In my opinion, Qualcomm is the undisputed world leader in mobile technologies – which is one of the fastest growing areas in all of technology. On the other hand, Qualcomm is also a technology stock, and as such, is subject to a certain amount of cyclicality. Fierce competition is one reason why, but I believe the biggest reason is the rapidly-evolving nature of technological advancement. However, Qualcomm certainly has the resources and the people to effectively compete. Their extensive patent portfolio speaks loudly to that fact.
Additionally, Qualcomm is a rather complex technology company from the perspective of its different operating segments. On the other hand, as technology stocks go, it is rather simple in that it focuses on the mobile marketplace. I do not intend to get deeply into all the products and offerings that Qualcomm provides with this report. Instead, I will be taking a look at some of the important fundamental metrics via the F.A.S.T. Graphs™ fundamentals analyzer software tool in the following analyze-out-loud video.
However, for those that would like to know more about Qualcomm’s business, I offer the following long business description courtesy of S&P Capital IQ which nicely summarizes the company and its various business segments. It is rather lengthy, but conclusive at the same time.
“Qualcomm Incorporated designs, develops, manufactures, and markets digital communications products and services.
The company engages in the development and commercialization of a digital communication technology called CDMA (code division multiple access). It owns intellectual property applicable to products that implement any version of CDMA, including patents, patent applications, and trade secrets. The company also engages in the development and commercialization of OFDMA (orthogonal frequency division multiple access) technology for which it owns intellectual property.
In addition, the company develops and commercializes various other major technologies used in handsets and tablets that contribute to end-user demand. It owns intellectual property related to these technologies. The company’s products principally consist of integrated circuits (also known as chips or chipsets) and system software used in mobile devices and in wireless networks. It also sells other products and services, which include integrated circuits for use in wired devices, primarily broadband gateway equipment, desktop computers, and streaming media players; software products and content enablement services for wireless operators; and products designed for the implementation of small cells.
Segments
The company has three segments: QCT (Qualcomm CDMA Technologies), QTL (Qualcomm Technology Licensing), and QSI (Qualcomm Strategic Initiatives).
computers, and streaming media players.
The company’s mobile station modem (MSM) integrated circuits, which include the mobile data modem, Qualcomm single chip, and Qualcomm Snapdragon processors, perform the core baseband modem functionality in wireless devices providing voice and data communications, as well as multimedia applications and global positioning functions. In addition, the company’s Snapdragon processors provide advanced application and graphics processing capabilities. The company designs both the baseband integrated circuit and the supporting system, including the RF (radio frequency), PM (power management), and connectivity devices.
The company’s portfolio of RF products includes Qualcomm front end radio front end components
QCT
This segment develops and supplies integrated circuits and system software based on CDMA, OFDMA, and other technologies for use in voice and data communications, networking, application processing, multimedia, and global positioning system products.
QCT’s integrated circuit products are sold and its system software is licensed to manufacturers that use the company’s products in wireless devices, primarily mobile phones, tablets, laptops, data modules, handheld wireless computers and gaming devices, access points and routers, data cards, and infrastructure equipment; and in wired devices, primarily broadband gateway equipment, desktop that are designed to simplify the RF design for LTE (long term evolution) multimode, multiband mobile devices, reduce power consumption, and improve radio performance. QCT’s system software enables the other device components to interface with the company’s integrated circuit products and is the foundation software enabling manufacturers to develop devices utilizing the functionality within the integrated circuits.
QCT offers a portfolio of products, including both wireless device and infrastructure integrated circuits, in support of CDMA2000 1X and 1xEV-DO, as well as the EV-DO Revision A/B evolutions of CDMA 2000 technology. Leveraging its expertise in CDMA, the company also develops and offers integrated circuits supporting the WCDMA (wideband CDMA) version of third generation (3G) for manufacturers of wireless devices. Approximately 90 device manufacturers have selected its WCDMA products that support global system for mobile communications (GSM)/general packet radio service (GPRS), WCDMA, high-speed downlink packet access Design products, to premium-tier devices. In the year ended September 29, 2014, QCT shipped approximately 861 million MSM integrated circuits for wireless devices worldwide.
The company’s 3G/fourth generation modem roadmap delivers the latest network technologies across multiple product tiers and devices. Its central processing unit cores are designed to deliver high levels of compute performance at low power, allowing manufacturers to design devices with longer battery life between charges. The company’s Qualcomm Adreno graphics processing units are also designed to deliver graphics performance for visually rich 3D gaming and user interfaces. Majority Snapdragon processors also include the company’s integrated Qualcomm Gobi modem technology for advanced mobile broadband.
The company’s wireless products also consist of integrated circuits and system software for wireless local area networks (WLAN), Bluetooth, frequency modulation (FM), and near field communications, as well as technologies that enable location data and services, including global positioning system, global navigation satellite system, and BeiDou. Its WLAN, Bluetooth, and FM products have been integrated with the Qualcomm Snapdragon processor devices to provide additional connectivity for mobile phones, tablets, and consumer electronics.
QCT also offers WLAN, Bluetooth, Wi-Fi, and Ethernet products for mobile devices, consumer electronics, computers, home appliances, and other connected devices. The company’s networking products include Wi-Fi, Powerline, and Ethernet chips; network processors; and software. These products enable home and business networks to support the improving number of connected devices, digital media, data services, and other smart home applications., high-speed uplink packet access, and (high speed packet access) HSPA+ for their devices.
QCT also sells multimode products for the LTE standard, which offer backward compatibility to existing 3G technologies. The company’s integrated circuit products are included in a range of devices, from low-tier, entry-level devices for emerging regions, which might use its Qualcomm Reference
QCT utilizes a fabless production model, which means that the company does not own or operate foundries for the production of silicon wafers from which its integrated circuits are made. The primary foundry suppliers for the company’s various digital, analog/mixed-signal, RF, and PM integrated circuits are Global Foundries Inc.; International Business Machines Corporation; Samsung Electronics Co. Ltd.; Semiconductor Manufacturing International Corporation; Taiwan Semiconductor Manufacturing Company; and United Microelectronics Corporation. The primary semiconductor assembly and test suppliers are Advanced Semiconductor Engineering; Amkor Technology; Siliconware Precision Industries; and STATSChipPAC. The majority of the company’s foundry and semiconductor assembly and test suppliers are located in the Asia-Pacific region.
Competition: QCT’s competitors include, but are not limited to, companies, such as Broadcom, Ericsson, HiSilicon Technologies, Intel, Lantiq, Marvell Technology, Maxim Integrated Products, MediaTek, Nvidia Corporation, Realtek Semiconductor, Samsung Electronics, Spreadtrum Communications (which is controlled by Tsinghua Unigroup), Texas Instruments, and VIA Telecom.
QTL
This segment grants licenses or otherwise provides rights to use portions of the company’s intellectual property portfolio, which among other rights, includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products, including without limitation, products implementing CDMA2000, WCDMA, CDMA time division duplex (including time division – synchronous CDMA), GSM/GPRS/enhanced data rates for global evolution, and/or OFDMA (including LTE) standards and their derivatives.
The company’s licensees manufacture wireless products, such as mobile devices, also known as subscriber units, which include handsets, other consumer devices (tablets, laptops, e-readers, and personal navigation devices), machine-to-machine devices (telematics devices and meter reading devices) and plug-in end user data modem cards, certain embedded modules for incorporation into end user products, the infrastructure equipment required to establish and operate a network, and equipment to test networks video codec technology (H.265 or high-efficiency video codec), advanced WLAN (802.11ac), volatile (LP-DDR2, 3, 4) and non-volatile (eMMC) memory controllers, operating systems, user interfaces, graphics and camera processing, packaging techniques, sensor and sensor fusion algorithms, and application processor architectures.
Strategy: The company’s strategy to make its patented technologies available has been a catalyst for industry growth, helping to enable a range of companies offering a range of wireless products and features while increasing the capabilities of and/or driving down average and low-end selling prices for 3G handsets and other wireless devices.
Competition: The company competes with Broadcom, MediaTek, Texas Instruments, and VIA Telecom and subscriber units.
The company has a portfolio of the United States and foreign patents, and continues to pursue patent applications worldwide. Its patents have coverage in various countries, including Brazil, China, India, Japan, South Korea, Taiwan, and countries in Europe and elsewhere. Its patent portfolio is the licensed portfolio in the industry with approximately 260 licensees.
Additionally, the company has a patent portfolio related to primary technologies used in communications and other devices and/or related services, some of which are developed in industry standards development bodies. These include H.264 video codec technology, the next generation
QSI
This segment makes strategic investments that are focused on opening new or expanding opportunities for its technologies and supporting the design and introduction of new products and services (or improving existing products or services) for voice and data communications. majority of these strategic investments are in early-stage companies in various industries, including but not limited to, digital media, e-commerce, energy, healthcare, and wearable devices. QSI also holds wireless spectrum, which as of September 28, 2014, consisted of L-Band spectrum in the United Kingdom.
Other Businesses
The company’s other businesses include QMT (Qualcomm MEMS (Micro-Electro-Mechanical-Systems) Technologies), Pixtronix, and Small Cells divisions, as well as other wireless technology and service initiatives. QMT plans to license its next generation interferometric modulator display technology and to focus on wearable devices. Pixtronix develops and licenses display technologies based on MEMS structure optimized for portable multimedia devices. Small Cells develops and supplies 3G/LTE and Wi-Fi products designed for implementation of small mobile base stations (known as small cells).
The company’s other businesses develop and offer products and services that include, but are not limited to, software products and content and push-to-talk enablement services to wireless operators; development, other services, and related products to the U.S. government agencies and their contractors; device-to-device communication, including software for the connected home; data center products; medical device connectivity and related data management; and augmented reality.
Discontinued Operations
In 2013, the company completed its sale of the North and Latin America operations of its Omnitracs division to a U.S.-based private equity firm.
Trademarks
Qualcomm, Snapdragon, MSM, Adreno, Gobi, and Wireless Reach are trademarks of the company registered in the United States and other countries. Pixtronix is a trademark of Pixtronix, Inc., a subsidiary of the company.
Research and Development
The company’s research and development expenditures totaled approximately $5.5 billion for the year ended September 28, 2014.
History
QUALCOMM Incorporated was founded in 1985. The company was incorporated in 1985 under the laws of the state of California. In 1991, the company was reincorporated in the state of Delaware.
Shaping the future of today’s industries.
The world is transforming in amazing ways, and Qualcomm products are at the center of it all. From making major breakthroughs in mobile computing and networking, to creating the fabric of the Internet of Everything (IoE), our vast offering of products and technologies are pushing entire industries into new worlds of possibility. ”
I have chosen to feature Qualcomm as a very interesting high-yield dividend growth stock taken from the current Fairly Valued Research Candidates Portfolios from the 2015.06 DIV Contenders prescreened portfolio review provided to MisterValuation subscribers.
The analyze-out-loud video associated with this offering will focus on the fundamental merits I see with this company and provide insights on how I personally utilize F.A.S.T. Graphs™ to research a stock deeper and faster. Additionally, my goal is to assist subscribers in how to access and benefit from the resources at your disposal.
Disclosure: Long QCOM at the time of writing.
The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.