Within the tech segment, some chip and chip-related product manufacturers and designers look well placed to benefit from the booming smartphone and tablet industry. QUALCOMM, Inc. (NASDAQ:QCOM), NVIDIA Corporation (NASDAQ:NVDA), and Maxim Integrated Products Inc. (NASDAQ:MXIM) are three companies that offer EPS consensus growth rates above 10% going forward, and come at reasonable valuations while also paying out bulky dividends. As the switch from older technologies to smartphones continues around the world, these firms will see plenty of growth opportunities in the upcoming years.
To be in right place at the right time
QUALCOMM, Inc. (NASDAQ:QCOM) develops and delivers digital wireless communication products and services based mainly on its CDMA digital technology. As an established high-end processor chip provider for mobile phones and tablet manufacturers like Samsung, Apple Inc. (NASDAQ:AAPL), Nokia Corporation (ADR) (NYSE:NOK), Sony Corporation (ADR) (NYSE:SNE), HTC, and Google Inc (NASDAQ:GOOG), among others, the company seems poised to outperform its peers, delivering expected consensus annual growth rate of 18% for the next five years.
Trading at 18.1 times its earnings, way below the 70.4x industry average, and having yielded dividends of 1.56% over the last year (and 2.18% forward), I’d recommend buying and holding on to this stock. Its strong quarterly results portray an encouraging outlook for the upcoming years while its stock price does not yet fully reflect upside expectations.
In the short-term, earnings will most likely be driven by the rising demand of tablets and smartphones worldwide. Emerging markets, particularly China, provide plenty of growth opportunities as the switching from older technologies to smartphones is expected to continue for a few years. Its broad product portfolio positions the firm ahead of many of its competitors to benefit from the growth in demand. Furthermore, acquisitions will most likely play an important role in the future since the Atheros Communications purchase proved very fruitful by widening its product offering to include chips for consumer electronics.
By licensing its intellectual property, particularly its thousands of CDMA-related technology patents, the company has created yet another steady source of income, providing the firm with a wide moat that helps keep competitors at bay and the company sustainable in the long-term. “Essentially, phones are unable to connect to the CDMA network without paying a royalty to the company; QUALCOMM, Inc. (NASDAQ:QCOM)’s licensing arrangements with virtually every handset maker allow the firm to collect about 3% to 5% of the total price of each handset unit sold.” (Morningstar)
The ongoing upgrade to 3G networks should boost the company´s profits in the short and mid-term. Going forward, several manufacturers have already entered agreements for QUALCOMM, Inc. (NASDAQ:QCOM) to provide 4G technology. As the demand expands in the years to come, these products should provide new and greater sources of revenue. Meanwhile, value will be returned to investors via strong share repurchases and periodic dividend yield upsurges.
A company with many possibilities ahead
NVIDIA Corporation (NASDAQ:NVDA) used to be a PC chip manufacturer focused on graphics processors. Nowadays, it holds a wide product portfolio, operating in mobile processors, hand-held gaming, and data center segments as well. Just like QUALCOMM, Inc. (NASDAQ:QCOM), it targets and holds a strong position in the high-end graphics market; this obliges the company to remain innovative.
The recent development of the Tegra 4 chips is a perfect example. It has created a new set of growth prospects as several performance and efficiency upgrades make it even more attractive for handset and tablet manufacturers looking to improve their gadgets’ capabilities. The iCera acquisition played a major role in this development, backing management’s criteria to select takeover targets. With plenty of cash available for spending, acquisitions are not to be discarded in the future and its purchase history makes me rest at ease.
