3G + 4G + 4S Equals Long -Term Profits

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Qualcomm (Nasdaq: QCOM)

When looking for stocks to hold “forever,” or at least for several years, you want a company that has a dominant or solid position within a growing industry. In this report, we’ve highlighted such industries, including the nuclear, food, and healthcare segments, to name a few.

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And then there are cell phones. Or wireless communications, to speak more broadly. Few industries have been marked by more explosive growth and product innovations, with new smart phones and tablets coming out seemingly every week. What’s new today will likely be old news in a couple of months. And who doesn’t have a cell phone or tablet or netbook these days?

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Trying to figure out who will come out with the snazziest, feature-laden product next can give you a headache. So it’s better to look at those companies that are the innovators behind the scenes: who is making the guts of these devices?

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BEHIND-THE-SCENE INNOVATORS

That’s where Qualcomm (Nasdaq:QCOM) comes into the picture. Qualcomm is a leading supplier of semiconductors used in wireless devices, particularly smart phones, tablets, laptops, data modules, handheld wireless computers and gaming devices, routers and other infrastructure equipment. Their chipsets can be found on virtually every major platform, including Apple, Nokia, Blackberry and numerous Android units.

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The company was a pioneer in the CDMA (2G and 3G) and now in OFDMA (4G) technology that underlies most cell phones. Along with the expansion of 4G networks primarily in the U.S., 4G continues to be a major growth segment, especially in emerging markets and developing countries. In its most recent 10k filing, the company noted the continued worldwide transition from 3G to 4G, including the further expansion of 4G in China, India and other emerging nations.

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Another area of growth for Qualcomm is the continued evolution of its

Snapdragon processor for mobile devices. Introduced in 2008, Snapdragon is a mobile “system-on-chip” that integrates the CPU and GPU functions into a single chip for use in a variety of smart phones, tablets and smart books. These chips, which allow for smaller phones and tablets with increased battery life, account for 43% of the global market for multi-core mobile processors. For example, all Microsoft Windows Phone 8 smart phones are powered by Snapdragon chips.

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SNAPDRAGON PROCESSOR

The original Snapdragon chips were categorized (from low- to high-end) S1, S2, S3 and S4, but at the January 2013 Consumer Electronics Show, the San Diego, Calif.-based firm announced the second generation as Snapdragon 200, 400, 600 and 800. Packed with Qualcomm’s Krait 400 cores, the chips can process up to 2.3 GHz.

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Given its prevalence in smart phones and tablets, it’s easy to overlook other areas of strength, notably the wireless medical device market used for monitoring patients. The market for such remote monitoring is expected to reach $9.3 billion in 2014. Furthermore, the current trend suggests that at least 170 million Americans will be using these monitors by 2017. With the government promoting wireless medical applications, Qualcomm is well positioned to expand its product base in wireless medical devices to benefit the long-term bottom line.

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AN OVERLOOKED INDUSTRY

In the most recent quarter (FQ1 of 2014), Qualcomm reported record year-over-year revenue, up 10% to $6.2 billion and expect 5% revenue growth over the full year. The company earned $1.09 per share, even from a year earlier but up 25% from the prior quarter and up for the fourteenth straight time.

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2013 was a solid but slower-than-usual year for Qualcomm as revenue grew just 10%, compared to the 31% it delivered in the past three year. The company expects revenue growth between 5%-11% for FY2014. Some of the softness is likely due to China’s emergence in the 4G market. However, if Qualcomm’s penetration into emerging markets grows for its 3G/4G data services, analysts suggest its valuation could get a boost upward of $20 billion.

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A $ 20 BILLION FUTURE?

Though it’s a growth stock, Qualcomm has paid a dividend since 2003. And while the current yield of 1.9% won’t excite income investors, dividends are growing by about 14% per year, however, a 20% boost is in the cards for shareholders in 2014. That’s not too bad for a growth stock in the technology world.

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A TECH GROWTH STOCK

Qualcomm has a lot going for it. It maintains a leadership position in wireless

communications, which is still an emerging industry. With $9.5 billion in cash and virtually no debt on the books, its balance sheet is strong. Analysts are targeting a move of around 10%-12% for 2014, not including the 1.9% dividend.

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Source: Batanga

I look for the stock to take a run at its all-time high near the 100 level (split adjusted) reached in early 2000. That represents a gain of 25-30% from the current price. It may not get there this year or even next, but being a leader in a growth industry tells me that Qualcomm is headed in the right direction.

Yes, there may be pullbacks along the way. Hey, it’s a tech stock. But hold on. This is a stock to own “forever.”

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THE FUTURE OF QUALCOMM

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