Qualcomm: Quality and Financial Strength

04/01/2015 7:00 am EST


Ingrid Hendershot

Founder and President, Hendershot Investments, Inc.

In 1985, seven industry veterans discussed the idea of building “Quality Communications” and four years later introduced CDMA (Code Division Multiple Access), a commercially successful digital technology for wireless communications, notes Ingrid Hendershot, editor of Hendershot Investments.

Indeed, CDMA was highly successful, and their new company—Qualcomm (QCOM)—has rapidly grown to become a world-leading provider of wireless technology and services with revenues topping $26 billion.

Qualcomm continues to lead in the development and commercialization of CDMA technology; nearly 30% of 2014 revenues was derived from licensing and royalty fees.

In addition, Qualcomm is the world’s largest fabless semiconductor producer and the largest provider of wireless chipsets and software technology, which power the majority of all 3G/4G (third generation/fourth generation) devices available today.

Qualcomm’s wireless innovations enable new generations of increasingly powerful smartphones, computers, tablets, and consumer electronics. Sustained long-term growth opportunities will come from new mobile computing applications, emerging market growth, and increased data traffic.

Qualcomm’s highly profitable operations have generated strong cash flows. Free cash flow more than doubled over the last five years to $7.7 billion at the end of fiscal 2014.

During the 2015 first fiscal quarter, management returned $2.4 billion of cash to shareholders through $697 million in dividends and $1.7 billion in share repurchases, ending the quarter with $31.6 billion in cash and investments on a debt-free balance sheet.

Qualcomm recently reached a resolution with China, agreeing to pay a $975 million fine in connection with an anti-monopoly investigation.

The company expects fiscal 2015 revenues in the range of $26.3 billion to $28 billion with EPS in the range of $3.56 to $3.76, including the $0.58 charge related to the fine. Long-term investors should check out Qualcomm, a high quality technology leader with outstanding financial strength. Buy.

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