Qualcomm Drives Into The Future With Apple Renewal And Auto?Deals
Sep. 28, 2023 2:18 PM ET QUALCOMM Incorporated (QCOM)
Summary
This article discusses Qualcomm (NASDAQ: QCOM), a semiconductor company specializing in mobile and IoT (Internet of Things) technologies, and its investment prospects. Here are the key points from the article:
Investment Case: Qualcomm is a market leader in mobile and IoT technologies. Despite recent challenges and a pullback in its stock price, it remains an attractive investment option, offering a 2.8% dividend yield. The renewal of its supply agreement with Apple to provide 5G chips through FY26 has strengthened its investment case.
Apple Partnership: Qualcomm recently renewed its partnership with Apple, securing a contract to supply 5G RF chips to Apple through FY26. While Apple may continue internal development of RF chips, Qualcomm expects to supply around 20% of the RF chips for Apple’s flagship phones in 2026.
Mobile Segment: The mobile segment constitutes a significant portion of Qualcomm’s revenue (73%). It has faced challenges, particularly in China, resulting in higher-than-expected inventory levels for original equipment manufacturers (OEMs). However, Qualcomm anticipates relief in the March Quarter of 2024 as OEMs reduce excess inventories.
Automotive and IoT: Qualcomm has made strategic moves into the automotive sector, partnering with BMW and Mercedes to supply infotainment chip systems. The company also acquired Arriver, a computer-vision company, to expand its presence in Advanced Driver Assistance Systems (ADAS). In the IoT sector, Qualcomm leads in RF devices and anticipates growth opportunities as IoT adoption continues.
Research and Expansion: Qualcomm is actively investing in research and development. It acquired Nuvia, a chip research firm, and plans to launch its ARM-based chips in FY24, targeting the notebook and small-laptop market. Additionally, Qualcomm entered into a RISC-V joint venture, focusing on automotive chipsets and IoT.
Risks: The article highlights risks, including export restrictions on RF technologies to Chinese OEMs, changes in the US Tax Code affecting research costs, and potential legal disputes with ARM over licensing agreements.
Outlook: Despite challenges in the mobile sector, Qualcomm sees growth potential in automotive and IoT. It expects automotive revenue to grow at a CAGR of 54%, reaching $9 billion by the end of the decade. The IoT sector is also expected to experience growth, despite short-term weaknesses.
In conclusion, Qualcomm’s investment prospects are seen as promising due to its established position in the semiconductor market, renewed partnerships, expansion into automotive and IoT, and ongoing research and development efforts. However, it faces certain risks related to its business operations and the competitive landscape.
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