Qualcomm (NASDAQ: QCOM) is strategically aligned in the wireless space to grow for years to come. The company’s patents lead the way for stock repurchases, earning’s growth, and higher dividends.
Qualcomm’s revenue primarily comes from the sale of chipsets and from licenses and royalties on its intellectual property (IP) and patents for mobile communications, mobile applications, networking and communication.
Qualcomm chipsets power a majority of next-generation smart mobile devices including 3G/4G smartphones, tablets and more—a sector that is growing at double-digit rates compared to slower growth for traditional computing devices such as laptops, desktop and servers.
Qualcomm conducts its business through the following four segments: Qualcomm CDMA Technologies (QCT), Qualcomm Technology Licensing (QTL), Qualcomm Wireless and Internet (QWI) and Qualcomm Strategic Initiatives (QSI).
Qualcomm is committed to increasing shareholder value. Since 2003, the company has used its strong cash flow to return $19.5 billion to shareholders through dividends and stock buybacks and currently has over $2 billion authorized for additional buybacks. In fiscal 2012, Qualcomm spent $1.31 billion to buy back 23.9 million shares.
Dividends have grown steadily over the years and are up ten-fold from $0.025 per quarter in 2003 to $0.25 currently, without missing a beat through the economic downturn in the turbulent 2008-2009 economic period. Current dividends are up 16 percent over year-ago levels.
Qualcomm pays $0.25 quarterly ($1 annualized), a low but steadily growing payout, with a dividend yield of 1.6 percent.
Future Revenue Drivers
Bullishness on Qualcomm is primarily driven by its positioning in the mobile chipset market and strong IP portfolio. While mobile phone penetration is fairly high, worldwide smartphone penetration (including wireless broadband devices such as tablets, data recorders such as utility meters, etc.) is yet to catch up.
In addition, Qualcomm enables smart mobile applications through its SnapDragon line of processors and is driving newer mobile and location-oriented applications, wireless within the home, smart wireless devices for utilities, and low-power always-on wireless modems for utility meters.
This demand for smart mobile devices and services has translated into substantial revenue and earnings growth for Qualcomm. This demand is expected to continue through 2016, at which time growth will likely taper off.
Apple, Windows and Android
While Apple’s (NASDAQ: AAPL) sales appear to be tempering for the iPhone, users generally still indicate clear preferences for Apple devices. Moreover, Apple’s iPad and iPad mini also feature Qualcomm chipsets, so the latter company should gain from strong iPad sales (outperforming the iPhone). In addition, future Apple devices such as Apple TV may also include Qualcomm chips.
Qualcomm’s Snapdragon processor also is a part of Microsoft’s (NASDAQ: MSFT) Windows 8 mobile devices, which have garnered favorable reviews and could likely see a boost in sales for their convenience and integration with Windows desktops, applications and services. The introduction of Windows 8 is also expected to boost Qualcomm chipset shipments.
Meanwhile, smartphones based on Google’s (NASDAQ: GOOG) Android operating system lead the pack in volume shipments, far outperforming Apple and Windows smart phones. Android-based phones are also cheaper in price than Apple, and lower prices are driving volume shipments in emerging regions, to Qualcomm’s benefit.
Qualcomm’s fiscal year ends on September 30. Looking ahead, Qualcomm expects first-quarter 2013 revenues of between $5.6 billion and $6.1 billion. For fiscal year 2013, the company projects revenues of $23 billion to $24 billion, up from $19.12 billion in fiscal 2012 (20 percent to 25 percent revenue growth).
For the full year, Qualcomm reported total revenues of $19.12 billion, up 28 percent over FY 2011, and net income of $6.11 billion, up a substantial 43 percent, with earnings per share of $3.51 (diluted), up 39 percent.
As a result, the company ended the year with $26.84 billion in cash, cash equivalents and marketable securities, up from $20.91 billion a year ago. Qualcomm has only minimal investments in property, plant and equipment, primarily to support its 200+ offices, engineering and research and development. Liabilities were mostly current and unearned revenues, and largely unchanged from the year ago. As a result, stockholders’ equity was up 24.4 percent to $33.55 billion.
Shares offer a low but steady yield and large buybacks will boost returns. Moreover, the company has almost no debt and a sizable cash hoard. By most measures, shares appear reasonably priced at current levels.
Note: I am long Qualcomm shares.
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Todd Johnson publishes Dividend Lab, a web site focused on income investing.