On Dec 10, 2015, we issued an updated research report on QUALCOMM Incorporated (QCOM) QCOM – the market leader in mobile chipsets.
This Zacks Rank #5 (Strong Sell) company reported better-than-expected financial results in the fourth quarter of fiscal 2015 steering past the Zacks Consensus Estimate on both the top and the bottom-line front. However, Qualcomm has provided a soft outlook for non-GAAP earnings per share for the first quarter of fiscal 2016, estimating the same between 80 cents and 90 cents. Its midpoint of 85 cents is significantly below the current Zacks Consensus Estimate of $1.10 per share.
For long, Qualcomm has operated as the undisputed leader in the mobile chipset space. However, in recent times, it faces challenges from low-cost chip manufacturers like MediaTek and Rockchip as well as handset manufacturers’ SoC (System on Chip) projects such as Exynos by Samsung. Moreover, owing to the heating and reliability issues that have cropped up for the current Snapdragon 810, certain manufacturers like LG Corp. have opted to utilize the previous-gen Snapdragon 808. Likewise, manufacturers like Sony Corp. SNE have incrementally adopted MediaTek’s SoC for their product lines, bringing on desperate times for Qualcomm. On the other hand, Qualcomm still powers Apple Inc.’s AAPL iPhone 6S’s modem, but there have been reports that the Cupertino, CA-based company may chose Intel Corp. INTC for its next line of iPhones.
In a bid to curb escalating operating costs, management announced a Strategic Realignment Plan in July 2015 to improve its cost structure by retrenching 15% of its existing workforce. The planned job cut will affect around 4,700 to 4,800 employees. The company aims to reduce its operating costs by a massive $1.4 billion by the end of fiscal 2016.
In addition, regulatory proceedings against Qualcomm are on the rise with antitrust cases encountered in various countries. Recently, the European Union (EU) Competition Commission leveled charges against the company‘s anti-competitive practices in the chip-making industry. Apart from the EU charges, the company is facing or has faced regulatory investigations in China, Japan, Taiwan and South Korea as well as in the U.S. In all the cases, the regulators’ main concern is Qualcomm’s licensing model and misuse of its powerful intellectual property rights (patents) to maintain market dominance.
However, the opportunities in the smartphone arena are a strong incentive for Qualcomm as the company forecasts continued healthy global demand in the near term and over the next several years. Moreover, Qualcomm has fortified its hold in the medical IoT space with the acquisition of Capsule Technologies – a major global provider of medical device integration and clinical data management solutions – by its subsidiary, Qualcomm Life, Inc. This buyout will allow Qualcomm Life to extend its connected health platform.
In addition, Qualcomm recently collaborated with Xilinx and Mellanox in order to prepare itself for the server market. Qualcomm seeks to enter this market with its energy efficient ARM-based chipset to challenge the likes of Intel. The company is confident of the benefits of the ARM architecture and is hopeful of catering to the needs of the ever-growing data center industry in the near future.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment