After rallying significantly last year, chipmaker Qualcomm’s stock price has declined considerably so far this year. Though the company has witnessed strong growth (on a Non-GAAP basis) in the last few quarters, the various fines, litigation, patent issues, and antitrust charges slapped on Qualcomm undermine its licensing business, which has caused many analysts to downgrade the stock in recent months.

Despite the multiple lawsuits, we believe that Qualcomm’s diversification strategy will continue to drive the company’s growth going forward. The company has been entering new markets such as autonomous cars to drive its future growth, and estimates its addressable market will expand to $138 billion by 2020. In October 2016, Qualcomm announced the acquisition of NXP Semiconductors, which will significantly diversify the former’s product offering and provide it an entry into multiple markets outside its core mobile chipset business.

In this article we list several key factors that reiterate our view on Qualcomm’s long-term growth potential.

Our current price estimate of $69 for Qualcomm is more than 20% above the current market price.

5G Leadership To Help Qualcomm Retain Its Edge In Mobile

5G is the next generation of mobile connectivity. The increasing demand for high data speed and large network coverage, significant growth in mobile traffic, growing machine-to-machine communication in organizations, and the need to support the increasing demand for broadband services over mobile networks, are the key factors driving the shift to 5G. The 5G technology is expected to be developed by 2020 and the total number of subscriptions for 5G technology is projected to reach 89 Million by 2022.

Qualcomm continues to work closely with global infrastructure vendors and operators on 5G NR trials to drive the mobile ecosystem toward validation and timely commercialization. The company has announced 5G NR trials with SKT and Ericsson in Korea, AT&T and Ericsson in the United States, ZTE and China Mobile in China, Telstra and Ericsson in Australia, and Vodafone and Ericsson in Europe. The company is confident that it is in a strong position to lead the 5G revolution.

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NXP Could Give Qualcomm An Edge In Auto Market

As more and more customers look for a better digital experience in the car, many car companies are banking on technological advancements in their interiors to better compete with each other. This has led to an exponential increase in the semiconductor content per vehicle. According to research by Boston Consulting Group, the autonomous car market could be a $42 billion market by 2025, which could be around 12-13% of the total auto market. Qualcomm has targeted the automotive infotainment market with its family of advanced processors, and its automotive solutions, including cellular, Wi-Fi, Bluetooth, and infotainment SoCs, have been adopted by every major global automaker.

The acquisition of NXP Semiconductors, expected to close this calendar year, could help Qualcomm become the largest supplier of chips used in cars. NXP Semiconductors acquired Freescale Semiconductor for over $10 billion in 2015, as a result of which it became the largest semiconductor supplier to the automotive industry. NXP specializes in designing high performance devices used in automotive, which accounts for 36% of the company’s revenue. The addition of NXP’s portfolio would significantly diversify Qualcomm’s offering and provide it an entry into multiple markets outside its core mobile chipset business.

Qualcomm Could Disrupt Intel’s PC and Data Center Dominance

Qualcomm has been trying to gain a foothold in other growth markets such as PCs and data centers. Currently both of these markets are dominated by Intel, which commands a large share of the market. Qualcomm recently collaborated with Microsoft to make Windows 10 compatible on mobile computing platforms, and its Snapdragon 835 for mobile PC designs is scheduled to launch in calendar Q4 2017.

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