Qualcomm Inc (QCOM) stock looks set to make new highs following its CES 2017 announcements.
San Diego-based component manufacturer Qualcomm (NSDQ:QCOM) was one of the strongest performers in 2016, delivering a 30.4% return. The company also started the new year on a good note with its announcements at CES 2017. Of late, things have not been going that well for Qualcomm, with South Korea imposing fines on the company for patent licensing practices. While there's no doubt that Qualcomm is set for a good run in the long term, QCOM stock has moved sideways at best, over the last quarter, losing more than 4%. Well, we believe Qualcomm Inc is headed higher and could well breach the $80 mark in 2017. Yet, there are few key things which you should know before you expose yourself to QCOM stock.
Qualcomm At CES 2017
Qualcomm showed off its latest Snapdragon 835 chip at CES 2017 recently. Qualcomm has managed to pack a lot into the chip, which comes in at 35% (packs 3 billion transistors into a diminutive package) smaller than the Snapdragon 820 line. According to the company, it consumes 25% less power, supports AR/VR (natural support for Google Daydream), supports “exceptional photography”. It provides improved peak download speeds, up to 10 times as fast as the original 4G LTE modems, and packs in advanced security features including support for fingerprint, eye, and face-based biometrics. It is set to arrive in the first half of 2017.
Also at CES, the chipmaker unveiled several initiatives to drive further into the connected cars space, including a partnership with Volkswagen, a connected car trial in Germany, a new class of high-bandwidth LTE technology, 'Gigabit LTE' for vehicles, and more. Qualcomm intends to develop end-to-end car technology for the next generation of connected vehicles.
All these developments indicate that Qualcomm is geared up for the future and that it isn't placing all its eggs in one basket. Also, some leaked benchmark results of the 835 chip suggest that it could be an Apple (NSDQ:AAPL) A10 chip killer. If these reports were to be true then it would really augur very well for the world's largest mobile chipmaker. The announcements at CES reinforces the view that Qualcomm will continue to dominate the mobile chip space and spread its presence in new growth areas.
The NXP Factor
While Qualcomm continues to work on closing its $47 billion acquisition of automotive chipmaker NXP Semiconductor (NSDQ:NXPI), at the CES 2017, NXP showcased why the company is a major force in automotive computing. At the show, NXP partnered with several companies to demonstrate a "collective vision of safe and secure end-to-end mobility through a highly automated driving demonstration and experience." NXP also demonstrated its so-called RoadLINK platform in collaboration with automotive parts giant Delphi and privately held start-up Savari, highlighting the traffic safety improvements one can achieve through the platform.
IoT semiconductor and sensor demand is set to skyrocket in 2017 according to an analyst on Forbes. Quoting from the Forbes article, "NXP is one of the best positioned IoT semi vendors, and if a deal with Qualcomm is completed, I believe the combined company has the breadth of technologies and capacity to really dominate the IoT market." The NXP merger could bring strong growth opportunities for the smartphone chip giant, which has been hit by slowing growth. (See Also: Is Qualcomm Inc (QCOM) Stock A Better Bet Than Intel Corporation (INTC) Stock? )
Qualcomm was fined $850 million by South Korea for its patent licensing practices. Some may see it as a huge setback to the chipmaker, but Qualcomm may not suffer any irreparable damage. A good reference point is China's NDRC settlement with Qualcomm, which imposed a similar fine on the chipmaker but didn't have a substantial impact on the company's business prospects. These are regulatory risks, and form a part of the cost of doing business. Decisions like these should not be perceived as a great risk. As a matter of fact, following the settlement with China, new licensing deals in the country became a key driver of Qualcomm's impressive Q4 financial results, in which investors saw Qualcomm's net income rise by 51 % YoY to reach $1.6B. Further, Meizu is the latest Chinese smartphone maker to sign a licensing deal with Qualcomm after Vivo and Oppo as well as Hisense, Yulong, and Lenovo. This indicates that Qualcomm is reviewing and improving its patent licensing practices.
Putting It All Together
Investors who bought into QCOM stock last quarter are very likely to be disappointed right now. However, things may not be as bad for the chipmaker going forward. Investors here need to be patient and tread with caution because technical indicators suggest the stock may be in for a correction. As on 4th Jan, Qualcomm stock breached its 50-day moving average and was challenging its 100-day moving average, which means that the stock could transition into an intermediate-term bearish trend. If the stock falls below the $65 mark, the next target could be $60.
However, that doesn't mean that Qualcomm is a bad investment, because it has numerous growth opportunities ahead of it, in data centers, Internet of Things, and in connected cars. The average analyst consensus price target is $73 with an upside of 11.37% from yesterday's close price. However, it might be better to wait for any pullbacks to take positions in QCOM stock. 2017 could be the year when it may breach the $80 mark given its growth opportunities. The fact that Qualcomm has seen the biggest increase in ownership by active fund managers in Q4 is also encouraging.
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