Qualcomm Issues Some Good News About Semiconductors

Over the last year, you’ve likely read a slate of warnings about semiconductor shortages.

I’ve noted that used automobile prices surged in 2021.

A large part of this is directly linked to the shortage of semiconductor chips.

This has crunched auto inventory, leaving dealership lots with countless cars in need of these chips, which control everything from headrests to blinking lights.

You might have also read that Apple anticipated a crunch on chips this quarter. Unfortunately, the news impacted the company’s sales forecast for the iPhone 13 during the busy holiday season.

Well, how about some good news?

QCOM Stock Rallies

Qualcomm (QCOM) shares rallied by double-digit percentage points on Thursday.

Yesterday, the firm reported fiscal fourth-quarter earnings and numbers for the fiscal year 2021.

The numbers were fantastic. The company reported a 43% year-over-year increase in revenue to $9.26 billion for the fourth quarter.

Wall Street analysts’ consensus registered at $8.86 billion.

Of that huge figure, profits came in at $2.9 billion. That registered at $2.55 per share, another figure that walloped expectations at $2.26 per share.

The company can thank one segment: its chip business, known as QCT, which saw a 56% jump in revenue for the quarter. The numbers from this division are fantastic.

• Its automotive business sells chips to auto manufacturers and jumped 44%. Remember, a new car typically requires more than 100 chips.
• Its RF Front End business — which sells smartphone chips — increased 45%.
• Likewise, its Internet of Things business rose 66%.

Things were so positive that even Goldman Sachs issued an upgrade on the stock and assigned a price target of $194 per share.

When many investors were concerned about the semiconductor crunch, Qualcomm found success by shaking up its production. The company sent orders to various manufacturers to ensure they would have enough supply on hand and to reduce any bottlenecks in the supply chain. The company’s chief financial officer said that although the company does face some supply constraints, its overall supply strategy worked out “exactly as we had planned.”

The explosion of 5G demand in the United States has propelled sales higher. And things look even better in the future for this global chip manufacturer.

The Internet of Things and 5G Will Carry It Higher

A remarkable forecast for future growth overshadowed this strong quarterly report. The company now expects first-quarter earnings to fall between $2.90 and $3.10 per share. New revenue sits between $10 billion to $10.8 billion.

Those numbers are up sharply from previous analysts’ forecasts of $2.60 per share and $9.7 billion in revenue.

What’s driving the optimism? As 5G continues to experience widespread deployment, its connection to the Internet of Things is quickly captivating the U.S. and global economies.

You see, 5G and the Internet of Things are on the verge of ushering in the next industrial revolution for the world.

4G, which companies deployed in the previous decade, was largely a revolution in changing how businesses interact with consumers. 4G technology largely revolutionized online shopping and personal communications while disrupting the 20th century retail infrastructure of shopping malls and landline phones.

Simply put, it transformed the “consumer economy.”

But 5G also transforms business-to-business networks in a profound way. The Internet of Things connects smart devices, robotics, mobile devices, utility companies, security, home networks, industrial centers, fitness applications, and more all on one network.

It will revolutionize supply chains, usher in driverless freight, and automate homes and business centers. And virtually all of it will require smart semiconductors and sensors that can communicate with each other and further drive down costs of living.

The Internet of Things is largely deflationary, much like Amazon and Apple have been for the consumer economy.

Here’s What to Do

As I’ve noted before, semiconductors are an offensive investment to take advantage of growth and disruption in the new digital economy. Cybersecurity, meanwhile, remains the defensive backbone for the safety and security of the networks.

These chips are essential, and demand will remain extremely robust in the future.

If you think that sensor demand for used vehicles is high, wait until companies like rail giant CSX Corporation require countless sensors for each rail car to communicate the status of their haul along the entire supply chain.

Qualcomm is now trading in the Green Zone on TradeSmith Finance. It is also a stock that falls within four of our favorite strategies: Best of the Billionaires, Value, Low-Risk Runners, and Sector Selects.

Next week, we’ll talk about other companies that will benefit from the 5G revolution.