Recent Buy – Qualcomm Inc

Whenever I make a purchase, I like to share my buys to document and illustrate how I am building my income stream over the course of months/years. My main goal is simply to keep investing at regular intervals and build my passive income over the course of time. In a sort of ways, I am building my own pension, hoping to get to a point where I can simply live off my dividends without touching my principal investment. This earnings season has been an array of earnings and revenue misses and with that, comes volatility providing opportunities for long term investors to pick up shares at attractive valuations. Last week, I decided to put some of my cash to work.

I added to my position in Qualcomm Inc (QCOM) with 15 shares @ $50.98. The stock yields 3.8% adding $28.80 to my annual dividend income.

Recent Buy Decision

  • Qualcomm is the world leader in wireless digital communication products. The company’s products or licenses can be found in almost every mobile device produced in the recent years. As a result, the company’s revenue is diverse and robust.
  • Whether a consumer buys an Apple (AAPL) iPhone, or Google (GOOG)(GOOGL) Android device, either a Qualcomm chipset or Qualcomm technology license can be expected to be present. No matter who wins the smartphone war, Qualcomm is the common denominator and will surely get a piece of the pie.
  • Some investors have raised questions about growth in smartphone – but I remain bullish as technology keeps improving taking us from one generation to the next, and Qualcomm leads the industry on this front.
  • Most short-term speculators seem to be too focused on the smartphone market. Remember that Qualcomm is a communications giant and its web of innovative technologies is not limited to the smartphone industry. Yes, most of its growth came from the smartphone industry in the last decade, but technological development does not stop there…there’s a plethora of fields that Qualcomm researches, innovates and invests in. New market segments that look lucrative include – wearables, smarthomes, smartcities, Internet of Things (IoT), the connected-car automotive sector, neural network chips etc.
  • Qualcomm pays $1.92 in annual dividends and currently yields ~3.8%. The company is also a proven dividend grower – having grown dividends for 13 consecutive years, with a 5-yr dividend growth rate of 19.2%.
  • The company is almost debt-free, having only recently deciding to tap into the debt market to increase buybacks and dividends.
  • Strong balance sheets (the company holds ~$22B in cash)
  • Attractive valuation (see chart below)
  • Read my full dividend stock analysis here

QCOM-Nov092015

Risks

  • The company came under intense pressure from China – when partners and technology users simply refused to pay the licensing fee. The Chinese government investigated Qualcomm for monopolistic methods and Qualcomm settled with a payment of $975M in antitrust fine. Similar issues may arise in the future.
  • The  international sales, where Qualcomm makes most of its money results in a drag due to the strong US$.
  • The executive pay has risen alarming high in 2014 as they reward themselves handsomely.
  • Recent investments have been questioned by analysts and Qualcomm has acknowledged that some will need to be revisited and reviewed.
  • A tech company always have to be on the lookout from disruptive upstarts stealing market shares. Competition from bigger players such as Intel (INTC) is also mounting on IoT, smarthomes, connected-car fronts.

Further Reading

Full Disclosure: Long AAPL, QCOM. My full list of holdings is available here.

13 thoughts on “Recent Buy – Qualcomm Inc

  1. Seems pretty solid. Buy the producer that has something in Every, Single, Smartphone out there! Like you highlighted, main risks would be IP theft, issues operating in China and keeping ahead of the curve on new technologies. But, seems so long as they have products for both Apple and Alphabet(Google), they ought to do all right!

    • These are the type of business models I love. No matter, what people go with – the underlying tech is the same, and QCOM comes out on top. Theres so many new ventures that QCOM is looking at – and will surely succeed. That market is discounting this great company and its too hard to pass up.

      R2R

  2. Great buy, R2R! I’ve always shied away from tech companies (with the exception of IBM), but how can you stay away from a company like this? No matter whose phone you buy, Qualcomm’s products are in there. A non-competing company in a competitive industry is definitely a wonderful investment.

    They are to the tech industry what MGA is to the auto industry, which is another industry I stay away from (though MGA does grace my portfolio).

    Glad to see you making consistent investments. I won’t be able to buy a dividend stock for the next year as something has come up for me financially. Hope you reach financial freedom soon!

    Sincerely,
    ARB–Angry Retail Banker

    • Thanks for stopping by and the wishes, ARB. I think you have surmized well – ‘a non-competing company in a competitive industry’…I love companies like QCOM and MGA – which have products in all competitors. I own MGA as well – and for this transaction – it was a toss up between QCOM and MGA for me – as both fell after the quarterly reports due to headwinds in the industry – QCOM for the China, licensing and other issues, and MGA because of the VW issue. Went with QCOM for now, will be looking at MGA to buy more once I have more cash accumulated.

      Hope the financial issues arent too bad. Good luck for the next year
      R2R

  3. Solid buy R2R, we plan to add more Qualcomm shares once we have more US cash. Qualcomm will remain a big giant in the cellular technology field and continue making money as long as people need cellphones.

  4. R2R – I do not own this, but looked at it when it was around $75. Since then it has had a few headwinds, including the challenges you mentioned collecting royalties in China. I think that may be behind them, but my understanding (and I could be mistaken) is that Samsung and Apple are no longer using Qualcomm’s chips in of some of their high end smart phones. Interested to hear you thoughts.

    • Hi Dining,
      The mobile phone makers have been turning a bit hostile against Qualcomm, but its a relationship they need to maintain if they need the technology. The fact of the matter is that Qualcomm owns patents on those and whether vendors like it or now, they need to fork over the money either for the chipsets or for the licensing to Qualcomm. The patent infringement world is fascinating in its own sense – and its a minefield of litigations against each other. We might see more of that in the future. Meanwhile, Qualcomm needs to keep innovating and garner more patents going forward as technology evolves past the 4G – going into 5G.

      Best
      R2R

    • Hey Ben,
      Qualcomm has definitely done very well in the past and I am confident that they will do well in the future. One big concern is that huge compensation package for execs – which should be cut imo.

      R2R

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