By: Barb Rishel

Although Qualcomm (ticker: QCOM) is not a household name, its products are an essential part of everyday life. QCOM is transforming the way we work, live and communicate so we can stay intelligently connected using state-of-the-art proprietary semiconductor chips and software. QCOM is the world’s leading supplier of chipsets for mobile phones, tablets and modems, and it receives a steady stream of royalty revenue from their extensive wireless patents.

Back in 1985, seven former Linkabit (a small private technology company) employees created a company to build QUALity COMMunications, and they named it Qualcomm. In 1995, they developed a key wireless technology. Code Division Multiple Access, or CDMA, is now the standard wireless technology company worldwide. Today QCOM has over 40,000 employees in 170 offices in thirty countries, with revenues of $36 billion and an astonishing 150,000 patents.

Importantly, the company receives royalty fees on every device that uses its proprietary wireless technology. In 2022, total worldwide handsets sold totaled 1.2 billion units. QCOM has license agreements with both Samsung and Apple, which represent approximately 50% of the worldwide cellphone market. The rest of the cellphone industry is fragmented with hundreds of smaller manufacturers, and QCOM has agreements with most of them as well. QCOM is a financially strong company, with $40 billion in total annual sales and over $8.0 billion in cash on the balance sheet. QCOM’s results for the first quarter of 2023 (ending in December) were weaker than expected but still strong.

During the Covid years 2020-2022, QCOM’s products were in high demand because remote workers required more sophisticated technology solutions to complete tasks previously done in the office. Upgraded smartphones, tablets and personal computers became a necessity, and Qualcomm’s products were an integral part of the solution. The stock price rose to an all-time high in late 2021.

However, in 2022, global smartphone sales began to decline as economic conditions softened, the 5G rollout stalled and China’s economy shut down to stem the spread of Covid-19. As a result, Qualcomm’s earnings declined, and the stock price fell.
Qualcomm says the smartphone downturn is the sharpest correction that the company has seen since 2009, and recovery is not expected until China can fully reopen, which is projected for late 2023 into mid-2024. However, there are several reasons to remain optimistic:

1. Qualcomm continues to receive royalty rights on most, if not all, smartphones. The company is aggressively pursuing other revenue sources where they have technological advantages, such as intelligent connectivity, artificial intelligence solutions and private 5G networks.

2. The 5G rollout is just beginning and is estimated to take at least two to three years. Consumers and businesses have demonstrated the need for increased wireless connectivity and faster speeds, which was magnified during the pandemic. More sophisticated networks and smartphones are needed, and Qualcomm has developed the leading technologies to enable this digital transformation.

3. The automotive industry is using more advanced technology for all the “bells and whistles” which includes Bluetooth but also “smart” driving applications, such as increased safety features and autonomous driving. Qualcomm has a $30 billion pipeline for a great deal of these applications, and Mercedes is a key customer.

QCOM is well positioned for a recovery in the second half of 2023 as China reopens and telecommunications companies continue to upgrade smartphones and networks to 5G. The stock is trading at a 30% discount to the market on a price-to-earnings (PE) multiple and pays patient shareholders a hefty 2.6% dividend yield. Tufton considers Qualcomm to be an attractive holding in your portfolio.