Qualcomm (NASDAQ:QCOM) may be undervalued despite the company’s recent disappointing guidance for FQ3.
Let’s take a closer look at what is going on.
Qualcomm (NASDAQ:QCOM) has recently been attempting to diversify its sources of income by expanding into industries other than those for mobile devices.
For example, the company has kept advancing into the IoT and Automotive sectors. As a result, IoT is now the business’s fastest-growing division and its second-largest source of income after handsets. IoT has also risen as quickly as or quicker than any of the other segments for the past two quarters.
All this expansion had many analysts expecting even better earnings numbers in FQ2 and FQ3. Unfortunately, those expectations did not prove true. The business just recently provided a FQ3 guide of $10.9 billion revenue versus analyst projections that were above $10.35 billion.
Still, many experts place Qualcomm at the top of the list of semiconductor giants for growth due to the company’s diversification momentum and confirmation that it is the king of 5G.
That confirmation, by the way, came from Apple (NYSE:AAPL), which recently affirmed the company as the king of 5G modems through its actions.
Building a High-Quality 5G Modem is Not Easy
It turns out building effective 5G modems isn’t easy and companies that are good at it, like Qualcomm (NASDAQ:QCOM) stand out in the marketplace.
That fact combined with the fact that the market has reduced Qualcomm’s (NASDAQ:QCOM) share price and valuation in spite of continuous and growing revenue makes the company a hot choice for investors – especially compared to volatile stocks like Micron (NASDAQ:MU) or Nvidia (NASDAQ:NVDA).
Another consideration in Qualcomm’s favor is what has been happening at Apple regarding its 5G modem.
According to court documents uncovered by Reuters, Intel (NASDAQ:INTC) acknowledged selling its smartphone modem business to Apple for “a multi-billion dollar loss.” Qualcomm’s patent licensing methods, according to Intel, “strangled competition” and effectively forced it out of the market.
So in other words, Apple purchased an underperforming modem division, which it intended to employ to compete with Qualcomm’s modems. Intel acknowledged that it was “driven out” of the market because it couldn’t compete.
That would seem to make buying Intel’s modem division a curious choice. Also, Apple’s failure to depose Qualcomm by its 2023 date in that court matter basically demonstrates that Qualcomm is the acknowledged 5G leader.
Apple Had Set Out to Reduce Future Costs & Internalize Modem Components
This action caused Qualcomm (NASDAQ:QCOM) to get a new rating from analysts due to it losing Apple as a modem customer. It appears the market is now having to reintroduce the alleged lost money into its models as time has passed and the 2023 iPhone draws closer.
The diversity that resulted from Qualcomm’s diversity-out-of-necessity strategy that we mentioned earlier and a successful defense against Apple’s actions have both been major victories for the company.
Qualcomm has advanced through the ranks to not only experience enormous, steady development but also to have its superiority recognized by its clients.
And if the Apple rumors are accurate—which the odds suggest they are given the enormous amount of technological know-how required to create a 5G-anything component—Qualcomm won’t have to contend with an even more difficult uphill battle by making up for the loss of 80% of the iPhone market share in 2023.
Apple is learning the hard way that it has no place in the RFFE and 5G modem markets.
Qualcomm Still the Best Choice
There’s a good reason why so many companies use Qualcomm components in their goods. The return on investment will eventually be too high for Apple to continue along the route of replacing even the most expensive component in its flagship product, thus the company will have to continue using Qualcomm goods.
Apple’s entry into 5G modems ultimately signaled Qualcomm’s strong position to everyone in the handset market due to its failure to replicate the component.
All of this is why Qualcomm (NASDAQ:QCOM) appears to be undervalued and may deserve further investigation from investors.
Featured Image: Megapixl @Michaelvi
