The last year has not been kind to shares of wireless chip giant Qualcomm . The stock is down nearly 30% year to date, dramatically underperforming the PHLX Semiconductor Sector Index ETF , which is down about 1.5% in that time.
The company has faced a multitude of issues from problems collecting on the 3G/4G device royalties that it is owed from certain device manufacturers to an increasingly difficult competitive environment in its once fast-growing chip business.
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Let's take a look at what management had to say on its most recent earnings call to try to keep investors interested in what continues to be a difficult stock.
A chip business in transitionDuring the call, CEO Steve Mollenkopf said that the current fiscal year will be a "transition year" for the company's chip business. According to the executive, the performance of this business during the second half of the company's fiscal year 2016 should be "much stronger" than it will be during the first half of the year.
Mollenkopf attributes this expected back-half strength to a number of factors including a "strong lineup of new chipsets" across the board, the continued impact of the company's previously communicated cost reduction efforts, as well as "reduced product costs" as the company moves its chipsets to 14-nanometer manufacturing technology.
All told, Qualcomm expects that its chip business will see operating margin expansion to at least 16% by the fourth quarter of its current fiscal year, up significantly from the 8% seen in the most recent quarter.
Snapdragon 820 seeing "strong" feedback, but has it won Samsung?Qualcomm indicated on the call that its next-generation high-end smartphone processor, known as the Snapdragon 820, is seeing "strong" feedback from customers and that customer traction is good. In particular, management says that the chip has won "over 60" device designs and has "high hopes" for the product beginning in the second half of the company's fiscal year.
That being said, investors should probably be cautious about reading too much into that particular statement. About a year ago, management characterized the design win momentum around the Snapdragon 810 as "robust" and even boasted that the chip would be featured in "over 60" designs.
Unfortunately for Qualcomm, Samsung chose not to use the 810 in either its Galaxy S6 or Note 5 flagship devices, arguably the two most important devices for a high-end mobile processor.
Although I do expect the Snapdragon 820 to be a more competitive product than the 810 was, it remains to be seen whether the 820 is able to win back a spot inside of future Samsung flagship devices. If it can, then that should bring some much needed revenue and gross profit dollars to the company's chip business.
If not, then "over 60 designs" is nice and all but, from a financial perspective, not exactly a substantial improvement over the situation with the Snapdragon 810.
QTL and China:Slower-than-anticipated progressDuring the call, management said that although it has made progress in signing 3G/4G licensing deals in China, even going so far as to sign new agreements with "two major Chinese OEMs," this progress has been "slower than [Qualcomm] had originally anticipated."
Management cautioned that in the near term, it might be difficult for the company's licensing business to grow in line with worldwide 3G/4G device sales. However, management appeared confident that over time the growth rate of its licensing business should "converge with the rate of global 3G/4G device sales growth."
Life beyond smartphonesAlthough Qualcomm's chip business derives the majority of its revenue and profit from sales of chips into smartphones, management tried to highlight the progress that the company is making to capitalize on adjacent opportunities.
Some of the examples that management gave included the company's efforts to build Wi-Fi system-on-chip products for routers, its recent acquisition of Ikanos Communications to expand its reach in the home gateway market and its efforts to provide stand-alone cellular modems for Windows 10 notebooks, 2-in-1 devices, and tablets.
All told, the company's non-smartphone related chip sales -- which spanned automotive, mobile computing, Internet of Everything, and networking -- made up around 10% of the company's QCT revenues during fiscal 2015, good for around $1.7 billion in sales.
The article 4 Things Qualcomm, Inc. Management Wants You to Know originally appeared on Fool.com.
Ashraf Eassa owns shares of Qualcomm. The Motley Fool owns shares of and recommends Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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