Security Analysis
Whitcomb Valuation

Research Report
April 28, 2015

Qualcomm, Inc. (NYSE:QCOM)

BUY
Price: $69.23
Target Price: $80.00

Investment Thesis

2014A

2015E

2016E

2017E

Sales/Share

16.24

16.11

17.59

20.09

EBITDA Margins

32.8%

32.0%

32.6%

33.1%

FCF/share

4.17

3.56

4.11

4.82

Price/Sales

4.60

4.27

3.97

3.48

Market Data
52 Week High:
52 Week Low:
Market Cap. (MM):
Shares Out. (MM):
Avg. Daily Vol. :
Div/Yield:

$81.97
$62.26
$113,550
1,630
14.15
0.48/2.76%

Parris Taylor parris.j.taylor@gmail.com Erik Quesada erikquesada1@gmail.com Kinjal Shah kinjal.shah86@gmail.com Brendan Sehgal brendanpsehgal@gmail.com Price Performance

EQUITY RESEARCH RUTGERS

QCOM holds ~$30B in cash on its balance sheet. This gives it significant financial flexibility.
Dividend hikes and share buybacks are underway.
Share repurchases at prices below intrinsic value are value-creating.
QCOM’s strong patent portfolio in CDMA and
OFDMA allows its licensing model to continue to generate strong returns on capital. and is better positioned to participate in the rapidly accelerating adoption of 3G/4G technology.
Investors should expect increasing demand for the firm's chipsets and strong growth in 3G/4G smartphones around the world. While competition has been incoming for quite some time, it will be difficult for all but very few to compete with the breadth of the technology that Qualcomm currently offers. The secular trend toward robust smartphone adoption marches on, which should drive healthy long-term QTL revenue growth at 85%plus operating margins. We anticipate margin expansion over the next 3-5 quarters after effect of one time events subside.
QCOM has begun to extend technologies into adjacent categories. TAM for combination of automotive, IoT, Mobile Computing and Networking is expected to be ~5B+ in non-handset connected

Ticker: QCOM

Qualcomm, Inc.

April 28, 2015

Industry Outlook
Historically Qualcomm has enjoyed impressive growth on the back of the booming smartphone industry and this has resulted in higher royalty income. However, in the last few months of the current year its growth has slowed down to some extent due to a number of factors, including the increasing saturation rate of smartphones in the developed markets and comparatively weak demand of high-end smartphones in the emerging markets. The wireless network infrastructure market is in a phase of transition as mobile network operators seek to address increasing mobile traffic demands amidst global economic uncertainties. This paradigm shift is bringing new challenges and opportunities to infrastructure vendors. China, which is a big telecom market, is going through a shift from 3G towards 4G networks yet only 1 percent of customers are 4G subscribers. Also, China Mobile Ltd. the largest Chinese mobile operator, has decided to offer smartphones that will run on Qualcomm’s superfast 4G LTE (Long-Term Evolution) network. We expect Qualcomm to benefit considerably as the company boasts an extensive five-mode LTE chipset portfolio developed on its state-of-the-art baseband technology. The five-mode standard includes LTE, FDD-LTE, TD-SCDMA, WCD-

Porters 5 Forces
Threats to New Entry: High initial costs, intellectual property protection, maintaining competitive technology among competitors, Industry progressing at a rapid pace
Bargaining Power of Buyer: Dominated only by a small number of large players, buyers can pose backwards integration, buyers have significant leverage on the price since they buy in high volume
Bargaining Power of Suppliers: High number of suppliers dominated by small number of players, diffusion of risk over many companies keeps the bargaining power of one supplier to a minimum, switching costs very low Competition Between Firms: Highly competitive industry, always pressure to come up with something better, faster and cheaper

SWOT Analysis
Strengths: First mover advantage enables the customer concentration company to sustain market position, robust research and development capabilities, strong market position and robust growth across CDMA and licensing businesses
Weaknesses: Customer concentration
Opportunities: Strong outlook for global semiconductors market, robust growth in Chinese 4G LTE mobile handset market
Threats: Involvement in investigation related to alleged anti-monopoly practices, intense competition, rapid technological changes, reliance on limited number of third-party suppliers

EQUITY RESEARCH RUTGERS

Company Description
QUALCOMM Incorporated (Qualcomm) designs, manufactures and market digital communications products and services based on Code Division Multiple Access (CDMA), Orthogonal Frequency Division Multiple Access (OFDMA) and other technologies. The Company’s products consist of integrated circuits and system software used in mobile devices and in wireless networks. The Company operates in three segments, including
Qualcomm CDMA Technologies (QCT), Qualcomm Technology Licensing (QTL) and Qualcomm Strategic
Initiatives (QSI). QCT develops and supplies integrated circuits and system software based on CDMA, OFDMA and other technologies. QTL segment provides rights to use portions of its property portfolio. QSI seg-