Qualcomm is Branching Out – Big Time


Qualcomm (NASDAQ: QCOM) is the latest tech company to start branching out into the Internet of Things, acknowledging that cell phone sales will probably continue to drop.

In what was the biggest Merger and Acquisition events of the year, and certainly the largest ever by a semiconductor company, Qualcomm announced that it would be acquiring NXP Semiconductors. The deal, worth more than $30 billion, has sparked a great deal of interest ahead of Qualcomm’s next earnings report on Wednesday.

While reaction to the announcement was by no means unanimous, it definitely leaned toward positive. After all, while $30 billion is a large number, Qualcomm actually has slightly more than that in cash on hand, with less than $12 billion in debt. What’s more, the two companies combined are expected to generate revenues of more than $30 billion a year by 2020.

Qualcomm expects the acquisition to push the company to the top of multiple industry segments, in addition to mobile and IoT: automotive, security, networking and RF. Analysts from Morgan Stanley, Cowen and Company and others responded positively to the news.

Qualcomm’s existing wireless business is still solid. The company has strong sales, a number of patent royalties and innovative chip development. But growth is beginning to slow as the worldwide smartphone market becomes more and more saturated. The purpose of this acquisition is to allow Qualcomm to expand boldly into the new markets being created by the rapidly growing Internet of Things.

While Qualcomm’s profitability has been a bit uneven, it’s always been strong. This has been due, in great part, to the company’s licensing business. Particularly impressive is the fact that the company’s asset growth has been positive in fourteen out of the last sixteen years – at one point, reaching a whopping 39%.

Since July, 21 analysts have issued a buy rating for the stock, 16 have assigned a hold rating and 2 gave it a strong buy rating. Currently, the consensus rating is Buy, with a target price of $64.96. It will be interesting to see how that will be affected by Wednesday’s earnings report.