The ability to swim against the tide
But then again, what happens when the smartphone upgradation cycle displays somewhat inevitable signs of a slowdown? Will Qualcomm be in a winning position even then? If you ask me, the answer is yes, and that’s what actually makes this stock one of my firm favorites.
It’s true that consumers in emerging markets are more cost-conscious than their counterparts in developed regions, and a large section of them may opt for less expensive handsets, even as the ‘2G to 3G’ technology transition takes place. This may lead to lower profit margins on chips that QUALCOMM, Inc. (NASDAQ:QCOM) manufactures for such low-end handsets — a fact which has already been acknowledged by the company while declaring earlier quarterly results. Added to that, the company also faces a threat from local manufacturers of far more inexpensive chipsets.
However, as I said earlier, given the massive number of consumers in emerging markets, the sheer volume of sales of its 3G-enabled chipsets should bode well for Qualcomm. In fact, the number of newly upgraded 3G users is expected to go up to a jaw-dropping 2.8 billion, as per research firm Wireless Intelligence. And it is here that royalties play a big part for the company, as 3G-based royalties on chipsets tend to be higher than 4G-based ones. That’s a clear advantage set to work in Qualcomm’s favor in the long run.
ARM’s army marches on
Coming to the question of royalties, that’s also something which is working very much in favor of ARM Holdings plc (ADR) (NASDAQ:ARMH), a company that licenses its chip designs to manufacturers such as Qualcomm and NVIDIA. In fact, with increasing royalties on ARM-designed chips that have been marketed by companies like Qualcomm, it seems to be a smooth road ahead for ARM Holdings plc (ADR) (NASDAQ:ARMH) for now. And with increasing demand for the company’s energy-efficient Cortex-A chip designs targeted at the mid-range handset market, ARM Holdings plc (ADR) (NASDAQ:ARMH) looks set to dominate over chipmaker Intel, as well.
My Foolish takeaway
Qualcomm has a lot going for it at present and its Snapdragon line of processors continues to be the industry benchmark. The company counts biggies such as Apple Inc. (NASDAQ:AAPL) and Samsung Electronics among its customers, and with both handset makers expected to launch pathbreaking phones in the future, Qualcomm should be laughing all the way to the bank. And with Google deciding to use a Snapdragon processor for its latest version of the Nexus 7 tablet, things should only get better from here on for QUALCOMM, Inc. (NASDAQ:QCOM). This is one stock that you should definitely add to your tech portfolio, if you haven’t done so already.
The article Make Hay While the Sun Shines With This Stock originally appeared on Fool.com and is written by Subhadeep Ghose.
Subhadeep Ghose has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and Qualcomm. Subhadeep 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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