QCOM Stock: This Little Device Could Be Huge for Qualcomm, Inc.
This Could Be the Next Big Thing for QCOM Stock
In today’s stock market, when you are getting a more-than-three-percent dividend yield, you probably won’t expect much in terms of capital gains. But for QUALCOMM, Inc. (NASDAQ:QCOM) stock investors, that wasn’t the case. Along with a 3.34% dividend yield, QCOM stock climbed 18.6% in the past 12 months.
However, if you look at bit further back, things get quite a bit gloomier. Despite its recent surge, Qualcomm stock is still down more than 16% from two years ago.
So, is QCOM stock ready to make a full comeback? It’s possible. And here’s why.
You might not have purchased a product directly from Qualcomm, btut you will likely have used its echnology. This is because while the company isn’t selling Qualcomm-branded gadgets to end users at the moment, its chips can be found in numerous smartphones and other mobile devices, including Apple Inc. (NASDAQ:AAPL)’s iPhone and Samsung’s (OTC:SSNLF) “Galaxy” line.
Despite the perceived slowdown in the smartphone industry, Qualcomm’s chip making business has been doing just fine. In the third quarter of the company’s fiscal 2016, which ended June 26, total reported devices sales grew four percent year-over-year to $62.6 billion. The estimated 3G/4G device shipments were in the range of 321 million to 325 million, representing an 11% increase year-over-year. (Source: “Qualcomm Announces Third Quarter Fiscal 2016 Results,” Qualcomm, Inc., July 20, 2016.)
Moreover, the company enjoyed favorable demand trends for its new chipsets across the mid- and high-end smartphone tier, particularly with the top 10 vendors in China. In the top tier, Qualcomm’s “Snapdragon 820” has more than 150 premium smartphone and tablet designs. In addition, the company has recently announced the “Snapdragon 821,” which boasts even better performance. Note that the Snapdragon 821 can also power virtual reality (VR) head-mounted displays. (Source: “QUALCOMM’s (QCOM) CEO Steve Mollenkopf on Q3 2016 Results – Earnings Call Transcript,” Seeking Alpha, July 20, 2016.)
Speaking of VR, that just might be the place for Qualcomm to find its next big catalyst, and I’m not talking about the chip.
Earlier this month, the company introduced its first virtual reality (VR) reference platform, the “Qualcomm Snapdragon VR820.” The VR820 is developed in partnership with Chinese electronics company GoerTek Inc. (SHE:002241) and is built on Qualcomm’s Snapdragon 820 mobile processor and software development kit. (Source: “Qualcomm Unveils Snapdragon Virtual Reality Reference Platform for Immersive User Experiences on Standalone Head Mounted Displays,” Qualcomm, Inc., September 1, 2016.)
What’s so special about VR820? Well, first of all, VR820 is a standalone VR device. Many VR headsets on the market today, including Facebook Inc.’s (NASDAQ:FB) “Oculus Rift,” needs to be connected to a computer in order to function—and VR-ready computers are far from cheap. Launching a platform for standalone VR devices could allow developers and original equipment manufacturers (OEMs )to tap into a new market.
The specifications are quite impressive as well. It is powered by a custom-designed, 64-bit “Qualcomm Kryo” quad-core CPU and Qualcomm’s “Adreno 530” GPU. The headset’s display has 1440 x 1440 resolution for each eye, which is better than both the Oculus Rift and HTC Corp’s (TPE:2498) “Vive.” Moreover, the headset has integrated eye tracking with two cameras and dual front-facing cameras for six degrees of freedom and see-through applications.
A New Revenue Source for Qualcomm?
The VR industry is expected to be huge. According to the International Data Corporation (IDC), worldwide revenues from the VR and augmented reality (AR) market is expected to grow from $5.2 billion in 2016 to more than $162.0 billion in 2020. (Source: “Worldwide Revenues for Augmented and Virtual Reality Forecast to Reach $162 Billion in 2020, According to IDC,” International Data Corporation, August 15, 2016.)
Qualcomm already offers the Snapdragon 821 processor that’s capable of powering VR head-mounted displays, but now it’s offering a standalone VR820 headset. If the company manages to crack just a few percentage points of the VR market by 2020, it could easily add billions of dollars to its revenue stream.
The Bottom Line on QCOM Stock
For income investors, chasing the hottest technology isn’t always the best play due to the risks involved, but Qualcomm might be different. The company already has a solid core business in addition to its VR endeavor. Its licensing business, “QTL,” and semiconductor business, “QCT,” should be able to back up QCOM stock’s impressive dividends. Its latest entrance to the VR world, on the other hand, would not only provide catalyst for future dividend hikes, but also huge capital gains potential for QCOM stock investors.