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Is this overlooked US tech stock a buy? [Part 1]

April 16, 2024
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Josh Viljoen
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Josh Viljoen

Deep dive into one of the best performing stocks in my US Portfolio

 

In this three-part series I will be taking a look at one of the best performing stocks in my US Portfolio and evaluating whether I think the stock is still a buy at the current price levels. The stock in question is a large cap stock that creates semiconductors, software and services related to wireless technology. The stock I will be analyzing is Qualcomm. Qualcomm trades on the NASDAQ under the ticker symbol $QCOM and has a market cap of $144 billion. The share is currently trading at a price of $128 at the time of writing.

 

Qualcomm is stock that I have not seen discussed by many investors and thus may present an attractive opportunity if it has been overlooked by the market and not on the radar of most analysts. The company specializes in designing and producing wireless telecommunications products. Qualcomm was founded in 1985 and is headquartered in San Diego. The company has over 45 0000 employs located across 170 locations in more than 30 countries. 

 

The entity operates through the following three core division business divisions:

 

  • Qualcomm CDMA Technologies (QCT) which sells the company's products and services
  • Qualcomm Technology Licensing (QTL) which is the companys patent licensing side of the business
  • Qualcomm Strategic Initiatives (QSI)the side of the company that makes strategic investments

 

Qualcomm CDMA Technologies (QCT)

 

The QCT division of Qualcomm is by far the largest of three divisions of the business and makes up just over 80% of the total of the companys revenue. The QCT business unit of Qualcomm develops and offers software and other technologies used in smartphones, tablets, gaming consoles, laptops, routers, data cards, consumer electronics, and in-car entertainment systems.

Qualcomm operates in the mobile technology field and is in direct competition with household names like Apple, Huawei, HTC, Nokia, and Samsung. In the semiconductor industry, it also faces off against companies like Samsung and MediaTek. Qualcomm produces chipsets for electrical devices and peripherals and is thus also in direct competition with AMD, Intel, and Nvidia.

The QCT business unit operates predominately under the Snapdragon brand. Snapdragon is the most widely used mobile phone processor in Android phones. The Snapdragon family includes Snapdragon mobile, compute, sound and automotive platforms. Each platform consists of application processors and wireless connectivity capabilities. Revenue from mobile chips make up just over 60% of this divisions revenue. IoT (internet of things) chipsets makes up roughly 19% of revenue, followed up RF Front-End (mobile device components that converts information into radio signals that can be transmitted and received over the air) at 15% and lastly automotive chips making up the remainder.

It is important to highlight that Qualcomm has a fabless production model. Fabless manufacturing is the design and sale of hardware devices and semiconductor chips while outsourcing their fabrication to a specialized manufacturer called a semiconductor foundry.

 

Qualcomm Technology Licensing (QTL)

The QTL division of Qualcomm is the technology licensing division that makes up roughly 16% of revenue. QTL grants licenses or otherwise provides rights to use portions of their intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture, sale or use of certain wireless products.

 Qualcomm has patents over various mobile communications technology including 3G, 4G and 5G technologies. They thus receive licensing revenue whenever mobile phone manufacturers use Qualcomms patented technology. This has led to numerous push backs from competitors in the past given that Qualcomm essentially have a monopoly over this connectivity technology that has become a global standard. Qualcomm have to battle through lawsuits and litigation to receive royalties from manufactures who are using their technology and not paying any licensing revenue to Qualcomm. The patents Qualcomm hold given them a distinct competitive advantage.

 

Qualcomm Strategic Initiatives (QSI)

Through its QSI segment, Qualcomm invests in a series of early-stage companies in a range of different industries includingbut not limited to automotive, internet of things (IoT), mobile, data centre and healthcare. The QSI segment makes up roughly 16% of total revenue and operates through Qualcomm Ventures

Qualcomm Ventures has an impressive portfolio as has invested in some big names at IPO including: Cloudflare, Matterport, Xaomi and Zoom. Qualcomm Ventures currently holds more than 150 companies in their portfolio. 

 

In the next part of this deep dive, we will take a look at the financials of Qualcomm and how they have performed in recent years.


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