Unique opportunities
I believe that investors will find QUALCOMM, Inc. (NASDAQ:QCOM) to be a compelling investment opportunity in this environment of device-to-device communication. Qualcomm is the market leader in the LTE modem market with market share at 97%. The company also has 59% market share in base band. Whether or not Qualcomm loses market share to Intel (NASDAQ:INTC) in mobile computing is somewhat irrelevant as the company will exploit opportunities in machine-to-machine communication.
The company’s mobile processor segment (Snapdragon) is still likely to grow as its processors are extremely cheap at $20 per unit. The company has grown accustomed to the lower average revenue per unit, which is something Intel will have to address by keeping prices low enough until the operations scale up to a break-even point. Because this will take time, Intel will have no choice but to take a hit on gross-margins for several years. This is something QUALCOMM, Inc. (NASDAQ:QCOM) will not have as much of an issue with, because even if the high-end tablet and mobile device OEMs (other equipment manufacturers) were to transition into Intel processors, there’s just no way Intel can compete with Qualcomm in the low-end market and remain profitable. Much of the growth in shipments that is projected is in the entry-level devices for emerging markets. QUALCOMM, Inc. (NASDAQ:QCOM)’s licensing driven strategy is extremely easy to deploy and makes for quicker product transition while lowering barriers-of-entry to markets that have lower levels of discretionary spending.
In summary I am not so optimistic on Intel. Intel trades at depressed price to earnings multiples because of the difficulty it will face with scaling its mobile processing division. The company’s gross margins will take a hit with its participation in mobile. Flattening PC shipments paired with decelerating growth in large-scale servers make it difficult for me to recommend Intel.
Conclusion
Apple Inc. (NASDAQ:AAPL) remains a compelling investment. The world of mobile will be based on incremental gains in technology. Lowering expectations on the “next thing” and instead focusing on product differentiation is the course mobile technologies will take. I believe that both Microsoft Corporation (NASDAQ:MSFT) and Sony will eventually come up with unique value propositions that could move the hearts of consumers over time (these two companies blow up dollars in research labs like they can’t run out).
Investors have to watch out for QUALCOMM, Inc. (NASDAQ:QCOM) in the coming years as it is likely that machine-to-machine communication will continue to ramp up in scale, complexity, and usefulness. The world is becoming more interconnected, and the line is blurring between one computing device and the next. Because of this, certain features will remain exclusive to one platform over the other. The most dominant platforms will likely be Android, iOS, and Windows.
Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple Inc. (NASDAQ:AAPL), Intel, Microsoft Corporation (NASDAQ:MSFT), and QUALCOMM, Inc. (NASDAQ:QCOM).
The article Buy Apple and Qualcomm After the Worldwide Developers Conference originally appeared on Fool.com.
Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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