Qualcomm: What Does The Future Hold?

Qualcomm (Nasdaq: QCOM) is scheduled to report its Q2 earnings on May 1. Investors would be curious to know how big of a windfall the chipmaker would be getting from its settlement with Apple last week. But rather than focusing on just the one-time settlement payout, investors should also try to evaluate how exactly Qualcomm’s growth trajectory could evolve going forward. Specifically speaking, investors should closely monitor its revenue and MSM shipment guidance revisions along with how the company’s board intends to use the settlement amount in their upcoming call. These items are likely going to impact where Qualcomm and its shares could head next. Let’s take a look.

Use Of Cash

There aren’t many specifics about the settlement between Qualcomm and Apple, to begin with. Qualcomm said in a filing that there’s now a 6-year long direct license with Apple, with an option to extend it by another 2 years, and that its EPS stands to grow by $2 as shipments ramp. But we don’t know the size of the involved settlement fee so the exact figure would be the highlight of its upcoming Q2 conference call.

Sure, there are analyst estimates to go by. For instance, UBS analyst Timothy Arcuri estimates that Qualcomm stands to receive a one-time windfall of $5 billion to $6 billion as a result of this settlement. So, an official word from the company’s top-brass would establish facts and end speculation. But with that said, investors should closely listen in on management’s commentary about what exactly they intend to do with this fresh multi-billion-dollar cash influx. Is it growth capital or would it be returned to shareholders?

I personally believe that Qualcomm’s management and its board would choose to return this new-found cash pile back to its shareholders for a couple of reasons. First, it would be an apt reward for long-standing investors for sticking by the company during its testing times. Secondly, Qualcomm as a business has a fairly low capital expenditure budget, at least when compared to its dividend payouts and repurchases, so there’s bound to be a substantial surplus left for shareholders even if it hikes capital expenditures by 10-20%.

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Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. ...

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Bill Johnson 1 year ago Member's comment

How does the competition look?

Business Quant 1 year ago Author's comment

Well, Intel exited so there's a reduced pressure on ASPs. MediaTek and others are still out there and creeping into lower-end but that's about it. No signs of them entering into the mid or high-end categories which is QCOM AP's bread and butter.