Why Invest In Qualcomm Stock? The Internet Of Everything

Why Invest In Qualcomm Stock?

Join futurist Jason Silva as he outlines just how much a seamless, secure, and connected Internet of Everything changes the way we use technology. See what can happen when connectivity transcends our devices and amplifies our lives. With the Internet of Everything, Qualcomm technologies becomes an extension of us. This is just one more way Qualcomm is bringing the future forward faster than anyone could have ever imagined.

Qualcomm collects royalty income on the majority of 3G and 4G handsets sold worldwide, as it holds virtually all essential patents used in these networks. Barring legal or regulatory challenges, Qualcomm’s royalty revenue should grow along with the overall smartphone market, even as much of the market growth will come from entry level phones. Qualcomm is the clear market leader in wireless chips, with a leading market share position in 4G LTE chipsets and business relationships with every prominent smartphone maker around the world.

Why Invest In Qualcomm Stock?

Qualcomm is first and foremost the steward of the digital communication technology known as CDMA, which is commonly referred to as a third generation, or 3G, wireless communications standard. 3G allows devices to send and receive voice signals and wireless data, and has played a major role in the proliferation of mobile devices. Qualcomm’s treasure trove of patents (with a monopoly in 3G and a significant portion of 4G) allows the firm to charge device makers a royalty fee as a percentage of the price of each 3G and 4G device sold (as most 4G phones are backward compatible with 3G).

With a near monopoly on CDMA technology patents, Qualcomm is able to charge a royalty fee as a predetermined percentage (3%-5%) of the price of each 3G device sold. With all 3G wireless networks based on CDMA technology, as well as most 4G phones having backward compatibility with 3G, we expect the firm to earn significant royalty fees over the next decade and likely beyond. As a whole, this revenue stream is earned at 85% plus operating margins. Accounting for almost three fourths of operating income, Qualcomm’s licensing business is the primary driver of its competitive advantage and huge global profits.

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With respect to 4G, the firm holds many essential patents for the relevant OFDMA technologies, but not to the same dominating extent as in 3G. However, we expect Qualcomm to earn comparable royalty rates on pure 4G devices, factoring in additional nonessential patents (faster speeds, network improvements, etc.). By company estimates, more than 95% of 4G handsets in the market will still be multimode (backward compatible with 3G) in 2018. It remains to be seen how 5G will be defined (new technology or improved 4G), but we anticipate persisting compatibility with 4G and potentially 3G networks whenever 5G may come to fruition. All inclusive, we project Qualcomm being able to collect some form of royalty on a substantial majority of smartphones for at least 10 years, if not 20 years.