Through The Fly's Eyes: Qualcomm
Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.
A Pioneer in the Business of Wireless Telecommunications
Wireless mobile telecommunications has become such an integral part of civilized life that it is sometimes surprising to remember that the business was in its infancy little more than twenty years ago. One of the members of the "founders club" is based in San Diego.
Qualcomm Inc (QCOM) designs, develops, manufactures and markets digital wireless telecommunications products and services based on its Code Division Multiple Access (CDMA) technology. The firm supplies integrated circuits and system software for voice and data communications, multimedia devices and global positioning products. It also licenses CDMA semiconductor technology and software to more than 100 other equipment and cell phone makers. The Qualcomm Ventures unit invests in wireless communications and Internet startups. Firms licensing Qualcomm's technology include Cisco Systems (CSCO), Hitachi (HIT), Motorola (MOT), Nokia (NOK) and Palm (PALM).
The company pleased investors last month, when it guided fiscal Q2 EPS to 48-49 cents (42-44 cents prior, 43 cent consensus) and revenues to $2.1-2.2 billion ($2.0-2.1B prior, $2.08B consensus). The new guidance was based on Q2 shipments of about 60-61 million Mobile Station Modem chips, versus a prior estimate of 55-57 million units.
Qualcomm shares popped on the announcement and have since been defining a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.
Brokers recommend the issue with ten "strong buys", seventeen "buys", seven "holds" and one "sell". Analysts see a twenty percent average annual growth rate, through the next five years. The QCOM PEG ratio (1.45), Price to Free Cash Flow ratio (31.30), Operating Margin (33.60%), Net Profit Margin (32.01%), Return on Assets (16.78%), Return on Investment (18.61%) and Net Income per Employee ($223.04k) compare favorably with industry, sector and S&P 500 averages.
Institutions own about 71% of the outstanding shares. The stock is one of those used to calculate the S&P 500 Index, the Nasdaq 100 Index and the AMEX Internet Index. Over the past 52 weeks, it has traded between $32.76 and $53.01. A stop-loss of $37.20 looks good here. Note that the firm is expected to report Q2 results on April 25th, after the close.