(By Mani) Shares of Qualcomm, Inc. (NASDAQ:
QCOM) are now trading near the low end of its four-year historical range of 13–24 times forward earnings despite its strong, competitive positioning and increasing exposure to a broadening base of customers.
Qualcomm has $26.6 billion in cash and investments, or $14.65 per share and currently trades at a P/E multiple of 13 times the 2013 consensus earnings estimates.
San Diego, California-based Qualcomm, which makes CDMA chips that power the leading smartphones and tablets, is a company that has the ability to grow more quickly than the market.
Qualcomm remains well positioned with the ramp at Apple, Inc. (NASDAQ:AAPL) and incremental uptake at Nokia Corp. (NYSE:NOK) and the company's 28nm upgrade planned for next year may further prove to be a catalyst.
Growth for Qualcomm remains non-linear as seasonality changes and supply of its new chipset ramps. Qualcomm, which shipped 152 million units in the March quarter, is expected to ship fewer chips in the June quarter.
"With the smartphone market becoming seasonal and lumpiness increasing in the company's near-term unit metrics, which are now getting tied more and more to major new product cycles, we now expect Qualcomm to ship 144 million MSM chipsets in the June quarter versus our prior estimate of 150 million, an increase of 20% YoY but down -5% QoQ," RBC Capital Markets analyst Mark Sue said in a client note.
Coinciding with the ramps at major smartphone customers following the launch of the Samsung Galaxy SIII launch and the unannounced but widely anticipated launch of the next-generation iPhone 5 later this year, some September shipments may get moved to the December quarter.
Qualcomm is designed in the Samsung Galaxy SIII, while Nokia, HTC, Huawei, and others remain on allocation for Qualcomm's new chipsets.
On the positive side, Qualcomm generates 35 percent of its revenues from the royalties from licensing its technologies, which offers a steady cash-flow stream, making the business model more defensible compared to peers in the industry as revenues from chipsets slow down near-term, thereby providing a cushion to near-term earnings.
Smartphones may grow by about 33 percent to about 650 million units in 2012, helped by further adoption in emerging markets.
"Of note, we see the fastest rate of growth coming from devices based on older versions of the Android OS by the likes of Huawei and ZTE in emerging regions. LTE devices have now also moved to the lower end of the markets with sub-$50 subsidized handsets," Sue noted.
Given the rapid move down market, the operating margins at many device manufacturers, barring Apple and Samsung, will continue to remain elusive.
Qualcomm's footprint is increasing at its leading customers - Apple and Samsung, while remaining steady at HTC and others. While Samsung unit growth in the next few quarters bodes well for Qualcomm, especially considering the expected demand lull for Apple iPhones, the average selling price trends and increased mix of baseband units and their impact on margins remain a focus for investors.
Nvidia is pushing its competitive, quad-core chipset in the Tegra 3, which claims better efficiency when compared to dual-core. Nvidia has 30 design wins so far for the Tegra 3, which is larger at launch than the Tegra 2, and its most high profile win is in the HTC One X, which launched at 20 carriers on the first day of release. In chipset production, Nvidia is developing 20nm as the next generation after 28nm, and the company is currently working on future nodes.
Nevertheless, Qualcomm remains well positioned as a leading vendor with key customers, Apple and Samsung and may benefit from growth in tablets and other devices.