Top Picks 2020: Qualcomm (QCOM)

01/06/2020 5:00 am EST

Focus: TECHNOLOGY

James Kelleher

Director of Research & Senior Analyst: Technology, Argus Research Corporation

Last year, Jim Kelleher, an analyst with Argus Research, chose NVidia Corp., (NVDA) as his Top Pick; the stock rose 80% and he believes long-term growth prospects remain strong. For 2020, he suggests another chipmaker.

Qualcomm (QCOM) is a designer and manufacturer of advanced semiconductors for mobile phones and commercial wireless applications. It provides integrated solutions, including processors, GPS, WiFi, basebands and other applications, for smartphones, tablets, and mobile PCs.

Qualcomm has extended its leadership in the 3G CDMA wireless standard into the 4G LTE niche. It derives substantial royalty and licensing revenue from its extensive intellectual-property portfolio for 3G, 4G and now 5G technologies.

Qualcomm had a highly eventful fiscal 2019, which began with the company battling both Apple and regulatory agencies in the U.S. and other jurisdictions. The May settlement and licensing agreement with Apple caused the stock to surge higher, only to retreat when the U.S. FTC reiterated its position that Qualcomm's licensing model violated FRAND standards.

Qualcomm exited the fiscal year having successfully executed on its strategic priorities. These include helping drive commercialization of 5G globally, completing a number of important 'anchor' license agreements, and executing across the product roadmap.

CEO Steve Mollenko explains pf that 5G is a meaningful step-change in complexity from 4G, given that 5G requires new and dense network architectures, high-performance basebands, advanced RF front end designs, increased processing requirements, and leading-edge process nodes.

Additionally, Qualcomm is actively supporting release 16 and 17, which support 5G in adjacent markets such as IoT. Qualcomm believes that '5G will represent the biggest opportunity in Qualcomm's history, according to the CEO.

Looking ahead to fiscal 2020, a key priority is to continue executing on the 5G transition with partners around the world. Currently, more than 40 device OEMs and more than 30 network operators are launching or announcing 5G products or services; those numbers have doubled since the beginning of calendar 2019.

Qualcomm hit revenue and non-GAAP EPS peaks over five years ago in fiscal 2014, at $26.8 billion and $5.27 per diluted share, respectively. With Apple signed, a potential settlement with the FTC, and 5G looming, Qualcomm may finally be in position to take operating results to new highs, though it won't happen overnight.

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