Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Can Qualcomm (QCOM) Profit from US-China Tensions?

Qualcomm (QCOM) could profit from the growing US-China tensions. To explain, Qualcomm is a leading manufacturer of telecom infrastructure, 5G wireless infrastructure, smartphones, networks, industrial Internet of Things (IoT) infrastructure, and cloud infrastructure.

Qualcomm’s biggest competitor is the privately held Chinese company Huawei Technologies. Many non-Chinese consider Huawei a security threat because of its close to the People’s Liberation Army (PLA). Notably, Huawei’s founder and leader Ren Zhengfei is a former PLA officer and the company’s first significant contract was with the People’s Liberation Army.

Consequently, former US President Donald J. Trump (R-Florida) put Huawei on a blacklist of companies barred from buying some American technologies. Thus, it is now illegal for American firms to sell semiconductor chips to Huawei, or companies that could sell to Huawei, the Lawfare blog reports.

How US -China Tensions Help Qualcomm

Moreover, US security agencies are considering placing Huawei’s smartphone spinoff Harmony on the blacklist, The Washington Post speculates. Huawei spun Harmony off to get around the black list. Hence, Trump’s successor President Joseph R. Biden (D-Delaware) is continuing the blacklist and expanding it.

Similarly in July 2020, Her Majesty’s Government announced plans to remove Huawei equipment from the United Kingdom’s 5G mobile networks by 2027, the BBC reports. British officials think Huawei is a security threat because of its connections to the PLA. The BBC speculates Qualcomm is one of the companies that British telecoms could turn to as an alternative to Huawei.

Tensions between the People’s Republic of China and democratic nations are growing. Notably, a US and British plan to supply the Australian Navy with nuclear submarines upset Chinese leaders.

American and British leaders hope to counter a Chinese naval build up by upgrading Australia’s navy. I think the next logical step is selling nuclear submarines to India.

Hence, the conflict with China is intensifying and creating new opportunities for Qualcomm. For example, selling 5G technology to Australian and Indian telecoms.

Qualcomm cashes in on Smart Infrastructure

Qualcomm Inc. (NASDAQ: QCOM) can cash in on Huawei’s problems because it manufactures almost everything Huawei markets.

For example, Qualcomm’s products include platforms for Wi-Fi, smart homes, artificial intelligence (AI), Bluetooth, Modem-RF systems, processors, cameras, facial recognition technology, mobile computers, networking, automobile connectivity, smartphones, 5-G, the Internet of Things (IoT), robots, Virtual Reality devices, wearable technology, audio, and the cloud.

Qualcomm is a growing company. Its quarterly revenues grew from $4.893 billion on 30 June 2020 to $8.06 billion on 30 June 2021. Moreover, Qualcomm’s revenues grew by 64.73% in the quarter ending on 30 June 2021.

That was the fourth strait quarter of impressive revenue growth at Qualcomm. Qualcomm’s revenues grew by 73.37% in the quarter ending on 30 September 2020, Stockrow estimates. 62.2% in the quarter ending on 31 December 2020, 52.13% in the quarter ending on 31 March 2021, and 64.73% in the quarter ending on 30 June 2021.  

Notably, Qualcomm’s four quarters of growth began after the US Commerce Department started tightening the blacklist and the British government announced the Huawei ban in summer 2020.

Does Qualcomm Make Money?

Qualcomm (QCOM) makes money from telecom infrastructure. It reported a quarterly gross profit of $4.56 billion and a quarterly operating income of $2.195 billion on 30 June 2021.

Qualcomm is making more money. The quarterly gross profit grew from $2.813 billion on 30 June 2020. Similarly, the quarterly operating income grew from $782 million on 30 June 2020.

Impressively, Qualcomm reported five quarters of negative quarterly financing cash flows during the pandemic. Hence, Qualcomm was paying debts. For instance, it reported quarterly financing cash flows of -$1.003 billion on 31 March 2020 and -$1.608 billion on 30 June 2021.

Qualcomm finished the pandemic with less debt and more cash

Additionally, Qualcomm (NASDAQ: QCOM) weathered the pandemic with less debt and more cash. For example, Qualcomm’s total debt fell from $16.427 billion on 31 March 2020 to $15.740 billion on 30 June 2021.

In contrast, Qualcomm’s cash and short-term investments grew from $10.6 billion on 30 June 2020 to $12.907 billion on 30 June 2021. Thus, Qualcomm’s infrastructure business accumulated more cash during the pandemic.

Qualcomm also gained more value during the pandemic. For example, Qualcomm’s total assets grew from $32.328 billion on 30 June 2020 to $38.769 billion on 30 June 2021.

Therefore, I think the restrictions on Huawei are profiting Qualcomm. Its business appears to be growing during the pandemic and the growing tensions between China and the self-proclaimed democracies.

Is Qualcomm a Value Investment?

I think Qualcomm (QCOM) has some value characteristics. Notably, its stock is cheap for a technology stock. Mr. Market paid $133.88 for Qualcomm on 24 September 2021, for example.

Yet Qualcomm’s stock price is experiencing some growth. For instance, Mr. Market paid $113.82 for Qualcomm on 22 September 2020. Thus, Qualcomm offers growing share value, cash, and revenue.

Qualcomm also offers an excellent dividend. Qualcomm paid a 68₵ quarterly dividend on September 23, 2021. The quarterly dividend rose from 65₵ on March 25, 2021.

Appealingly, Qualcomm has scheduled four 68₵ quarterly dividends for the next 12 months. Those dividends will start on 23 December 2021 and continue through 23 June 2022. estimates that Qualcomm offered a $2.72 forward dividend and a 2.02% dividend yield on 24 September 2021.

In the final analysis, I consider Qualcomm a value investment in tech because it makes money, has a high margin of safety, grows generates cash, and offers growing share value.