Must-know: Lone Pine eliminates position in Qualcomm

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Oct. 29 2019, Updated 8:13 p.m. ET

Lone Pine and Qualcomm

Stephen Mandel’s Lone Pine Capital’s new positions included Comcast (CMCSA), Canadian Pacific Railway (CP), Williams Companies Inc. (WMB), and Under Armour Inc. (UA). Top positions sold were Monsanto Co. (or MON), Qualcomm Inc. (QCOM), and Wyndham Worldwide (or WYN).

Lone Pine Capital exited a position in Qualcomm Inc. (QCOM) that accounted for 2.83% of the fund’s 1Q14 portfolio. Appaloosa Management also sold a position in Qualcomm last quarter.

 

Overview of Qualcomm

Qualcomm is a leading developer and innovator of advanced wireless technology products and services. Qualcomm Inc. includes Qualcomm’s licensing business—QTL. It also includes the vast majority of its patent portfolio.

Qualcomm Technologies—a wholly-owned subsidiary of Qualcomm Inc.—operates most of Qualcomm’s engineering, research, and development functions. It also operated most of Qualcomm’s products and services businesses. This includes its semiconductor business—Qualcomm CDMA Technologies (or QCT).

The company designs, manufactures, and markets digital communication products and services. The products and services are based on code division multiple access (or CDMA), orthogonal frequency-division multiple access (or OFDMA), and other technologies.

Qualcomm’s products mainly consist of integrated circuits—also known as chips or chipsets. The products also consist of system software. The software is used in mobile devices and wireless networks. It also sells other products and services including:

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  • integrated circuits for use in wired devices—particularly broadband gateway equipment, desktop computers, televisions, set-top boxes, and Blu-ray players
  • content enablement services for wireless operators—development, other services, and related wireless communications products used by the U.S. government
  • location awareness and commerce services
  • software and hardware development services

The company conducts business through four reportable segments—Qualcomm CDMA Technologies (or QCT), Qualcomm Technology Licensing (or QTL), Qualcomm Wireless & Internet (or QWI), and Qualcomm Strategic Initiatives (or QSI).

During fiscal year 2013, 49%, 20%, and 11% of Qualcomm’s revenues were from customers and licensees based in China, South Korea, and Taiwan, respectively. Its main customers include Samsung Electronics, Hon Hai Precision Industry Co. Ltd. or Foxconn, its affiliates, and other Apple Inc. suppliers.

Third quarter results above estimates

The mobile chip maker posted a 42% increase in third quarter profit. The results topped Wall Street estimates. It reported net earnings of $2.24 billion, or $1.31 per share—compared to $1.58 billion, or $0.90 per share, last year.

Revenues were up 9% to $6.81 billion from $6.24 billion last year. The earnings release said its “chip shipments reached all-time highs, driven by broad-based demand for its industry-leading 3G/4G chipset solutions.”

However, shares fell after the results. The decrease was caused by weak guidance. There were also concerns about collecting royalties in China.

Qualcomm facing investigation in China

The company said it expects growth opportunities in China—especially with the introduction of 4G LTE. The launch of 4G services in China will encourage competition and growth. It will bring 4G LTE benefits to consumers. It will encourage consumers to replace 2G (or GSM) devices. 4G LTE will also provide the industry with new opportunities—for example, machine-to-machine.

However, the company’s business practices are still being investigated by the China National Development and Reform Commission (or NDRC).

Qualcomm noted that “certain licensees in China currently are not fully complying with their contractual obligations to report their sales of licensed products to us (which includes certain licensees underreporting a portion of their 3G/4G device sales and a dispute with a licensee) and that unlicensed companies may seek to delay execution of new licenses while the NDRC investigation is ongoing. Litigation and/or other actions may be necessary to compel these licensees to report such sales and pay the required royalties for such sales and unlicensed companies to execute new licenses.”

For more information on Qualcomm, please read Overview: Qualcomm’s chipset products help it gain market share.

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