We closed this position on November 3, 2016. A copy of the associated Position Update report is here.
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2 replies to "Long Idea: Qualcomm (QCOM)"
Some good points and QCOM is worth exploring. A few considerations on investing in this name:
1) QCT fell behind Apple’s A7 in the 64-bit processor race and followed up with SD810, which fell short. While SD820 is an improvement, Apple isn’t standing still and moving ahead with A8. Apple is in the driver’s seat for now and I’d say it’s Apple’s to lose.
2) QCT lost credibility with Samsung and how long will it take (if at all) to regain that credibility or does Samsung just become an OEM competitor.
3) Other competitors at the low-end potentially gaining market share (HTC for example)?
4) 61% revenue exposure to China…2 points…1) Chinese cell-phone manufacturers (and the government for that matter) doesn’t really want QCOM to have leverage at the negotiating table; 2) China growth. What is happening to QCOM is also a reflection of its exposure to growth in the Chinese economy. See what has happened to WYNN, MU, YUM. QCOM is in the thick of this major economic slowdown, which could continue for a while.
5) Jana likely a good thing for QCOM. However, is QCT spin-off ultimately a good thing for QCOM? Maybe or maybe not. Perhaps a short term positive but QCT leverages QTL. Kind of reminds me of Microsoft break-up, which Ballmer and Gates opposed. Why shouldn’t QCOM be able to use its licensing cash cow to create better chip sets that ultimately lead to another cash cow?
6) Great points about valuation and 9% Yield providing a Margin of Safety. Still QCOM in the penalty box for some good reasons, which could turn out to be longer term than expected. Also, with each successive next-gen technology, QCOM loses a little bit of IP leverage. Granted, it is likely little but the trend is a drag.
Overall, it is tempting but a bit of a tougher call, IMO. You make some compelling arguments, though.
With today’s announced deal with Chinese smartphone maker Xiaomi, Qualcomm has patent licensing agreements with four of the top five handset makers in China. QCOM up over 5% today.