Like many names in the tech field, wireless and semis company Qualcomm (Qualcomm Stock Quote, Charts, News, Analysts, Financials NASDAQ:QCOM) had a great 2020 but this year the stock hasn’t given investors much to write home about. And while Qualcomm is now about 12 per cent off its high set earlier in January, portfolio manager Christine Poole thinks investors might still be better off looking elsewhere in tech.
Qualcomm, which creates semiconductors and software and has a store of patents related to the wireless industry, went from $88 per share to $152 per share over the span of 2020 and while this year started off well — the stock hit a high of $164.60 on January 20 — it’s been mostly a bust for QCOM, which has been trading around the $140 mark for much of the past six months.
In a way, that should count for steadiness at a time when a lot seems to be happening with the company, starting with the prolonged shortage in the semiconductor industry, as demand has far outstripped supply. Qualcomm has said it has struggled to fill orders for its products which include circuitry for the newly emerging 5G mobile phones.
Qualcomm is going to be constrained into early 2022,” said Qualcomm CFO Akash Palkhiwala after the company’s fiscal third quarter 2021 results were posted in late July. “And I think that there are a lot chip investments being put in place so that by the time we get to the second half [of 2022] we’ll be in a better place than we are.”
Qualcomm posted $8.060 billion in revenue for its fiscal Q3, which was a 65 per cent increase from a year earlier, while net income was also a big gain at $2.027 billion or $1.77 per share compared to $845 million or $0.74 per share for Q3 2020. (All figures in US dollars.)
Those year-over-year increases should be taken with a grain of salt, however, as they compare with a 2020 in which demand for Qualcomm’s products and services was low due to the pandemic. Even so, the company’s Q3 scored a beat of analysts’ consensus estimates for both revenue and earnings.
And while the 5G mobile tailwind hasn’t hurt Qualcomm’s top and bottom lines, Poole said Qualcomm has been making attempts to deepen its moat by getting into businesses outside of chips for phones.
“Qualcomm, obviously, they’re primarily a chipset and royalty company,” said Poole, CEO of GlobeInvest Capital Management, who spoke about Qualcomm in a segment on BNN Bloomberg on Tuesday.
“They’re trying to diversify their end markets out of handsets, and they’re trying to buy this car company that Magna is bidding for to get into the auto market,” she said. “So, I think you’re going to start seeing the company do more acquisitions like that to diversify their end market.”
“We don’t own Qualcomm, and I think there are lots of attractive investments in the technology space,” Poole said.
Along with the chip shortage, Qualcomm has dealt with the after-effects of Apple’s much-discussed decision announced last year to build its own cellular modem for its devices rather than rely on Qualcomm’s products. Apple and Qualcomm had already come through multiple years of lawsuits related to allegations of patent infringement, with Apple having complained bitterly about the high royalty fees charged by Qualcomm.
The loss of Apple’s business was taken by many to be a watershed moment for Qualcomm and the announcement of an end coming to their relationship had an impact on the QCOM’s share price when announced in December.
But going forward, Qualcomm is itself aiming to compete with Apple’s M1 chip, opting earlier this year to buy Nuvia, a chipmaker founded by former Apple chip executives including Gerard Williams.
“The world-class NUVIA team enhances our CPU roadmap, extending Qualcomm’s leading technology position with the Windows, Android and Chrome ecosystems,” said Cristiano Amon, Qualcomm CEO, in a March 16 press release.
“The broad support of this acquisition from across industries validates the opportunity we have to provide differentiated products with leading CPU performance and power efficiency, as on-demand computing increases in the 5G era,” he said.
But the impact of Qualcomm’s split with Apple could mean less in the long run than many may have assumed, according to portfolio manager Jim Lebenthal of Cerity Partners.
“I still believe in Qualcomm to the extent that it has laboured because people are worried about Apple, [but] I think that is missing the point on many levels. First off, they’re not even two years into a six year deal with Apple, that’s number one. Number two, it’s the patent library that matters for Qualcomm,” said Lebenthal, speaking on CNBC on September 8.
“Apple can go through all the trouble of designing its own chips and trying to work its way out of Qualcomm, but you still have the intellectual property that you got to pay Qualcomm for,” he said. “That’s the thesis here. [The stock] is taking too long to develop, but I’m not giving up on Qualcomm, not for a second.”
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