Many people know that San Diego-based Qualcomm (NASDAQ: [[ticker:QCOM]] is a big technology company, but there are not many who grasp the scale of Qualcomm’s success in recent years. One big reason is that Qualcomm is not a consumer-facing technology company. The wireless giant sells its radio chips, mobile processors, and related wireless technologies to other big companies, including smartphone makers like Samsung, LG, HTC, Google, and Motorola. Another factor may be that Qualcomm’s headquarters in San Diego is outside the Silicon Valley media spotlight.
But Qualcomm CFO George Davis put things in perspective yesterday in a presentation to analysts and institutional investors that was part of Qualcomm Analyst Day, held at the Ritz Carlton in New York’s Battery Park.
For the past three years, Davis said, Qualcomm has been riding a wave of extraordinary growth in smartphone sales. It was one of just 25 companies listed on the S&P 500 that managed to double revenue over the past three years. In fact, only six companies on the list had at least $10 billion in 2011 revenue—and still managed to double their sales in 2013. Of those six, Davis said four are tech companies: Apple, Google, Amazon, and Qualcomm.
It’s an elite group of peers. Each one is a technology leader, laying out a technology roadmap that will set the path of innovation for years to come.
Yet when the market research firm IDC reported (as it did last week) that Google’s Android accounted for 81 percent of all smartphone shipments during the third quarter ending in September, many folks probably didn’t realize that Qualcomm chips were in every Android phone—all 211.6 million of them. In comparison, Apple iOS shipments during the same period amounted to 33.8 million, or 12.9 percent of the market, according to IDC.
Nevertheless, Jacobs and other top Qualcomm executives said they consider themselves in the industry’s pole position, with the ability to “execute at scale” and still produce double-digit growth in device sales over the next year. The wireless giant estimated its revenue will increase by 5 to 11 percent in fiscal 2014, and fall between $26 billion and $27.5 billion.
“The fundamental growth drivers we feel quite confident about,” Davis said, “and you don’t need to make wild bets on technology to achieve these numbers.”
Qualcomm still sees plenty of room for growth in smartphones in coming years, Jacobs said, even though modest declines are projected in the average selling prices, as well as a modest decline in the rate that users replace their smartphones.
Aside from introducing a new version of the Snapdragon mobile processor and modem chipset before the meeting, the strategy Qualcomm outlined is intended to both wring improved efficiencies and reliability from wireless networks and to seize emerging opportunities in China, and in “adjacent” wireless markets for tablet computers, wearable devices, digital health, automobiles, utility smartgrids, and home networks.
“We’ve reached the limits on radio links, so now it’s all about the topology of the networks,” Qualcomm chairman and CEO Paul Jacobs said. To increase network capacity, Qualcomm plans to push the use of small cell base stations in buildings and the use of LTE wireless technology into unlicensed radio spectrum, a technique used for short-range technologies like Wi-Fi and Bluetooth.
Qualcomm spent about $5 billion on R&D in fiscal 2013 (which ended September 30), and is estimated to increase that by roughly 5 to 7 percent over the next year.
“We have to make investments far ahead of the market,” Jacobs told analysts. “It can take eight years from when we have an idea to the point where we have a chip or a device on the market.”
Qualcomm also has been stockpiling so much cash that the company says it returned $6.7 billion to shareholders in fiscal 2013 in the form of higher dividends and stock buybacks. The company says it had $8.1 billion in available cash in the U.S., with another $21.3 billion held in foreign accounts. (Returning that cash to the United States would incur taxes that Qualcomm considers prohibitive.) Going forward, the company says it intends to return 75 percent of its free cash flow to shareholders.
“While we’re doing this, we want to make sure that we can [still] take strategic actions,” Jacobs said. That doesn’t necessarily mean the company is planning some acquisitions. (Over the past five years, Qualcomm has made 49 acquisitions, and 38 were valued at less than $50 million. The only M&A deal valued at more than $350 million was Qualcomm’s 2011 acquisition of Atheros Communications, which was actually more than $3 billion.) There are others reasons to amass cash, Jacobs said. “It’s important to retain enough cash and mass to prevent your competitors from coming after you.”
