Trash-talk between Qualcomm (
) and Intel (
) investors notched up several decibels in recent days, which
probably means there's reason to worry about both companies.
Piper Jaffray mocks Intel's products. Citigroup disses Qualcomm's
supply chain. Somebody's about to get hurt.
Both companies make processors for cell phones and tablets,
the fast-growing industry that's every chip makers' holy grail.
Qualcomm has traditionally whipped Intel's butt in this arena -
it makes the vast majority of processors for 3G and 4G phones and
leaves the PC market to Intel - but Intel is finally out with a
competitive chip and a stable production stream that give its
backers hope for a piece of mobile action.
Any ground Qualcomm loses to Intel will lead investors to
wonder whether the strong earnings gains that have supported its
share price recently can continue. Any failure by Intel to make a
solid break into Qualcomm's market share will cause its
shareholders to wonder if there's much future in a company stuck
in the slower, lower-margin PC business. It's hard to tell which
side is more worried now.
Piper Jaffray analyst Gus Richard argues that problems with
Qualcomm's supply chain - problems that helped drop its share
price about 7% over two days last month - are overblown. Richard
believes the fixes Qualcomm is trying (mainly, adding suppliers)
will lead to even higher than forecast profits in 2013. Moreover,
he believes Qualcomm makes products that wireless device
companies will continue to prefer over anything Intel makes. He
considers Intel comments about supply chain issues fear-mongering
"to obscure their own shortcomings." He is not impressed with
Ultrabooks, a laptop/tablet hybrid Intel is banking on for
stealing iPad sales.
And really, Qualcomm's bottom line looks just fine. YCharts
Pro gives it strong marks for fundamentals and average marks for
share price value. Its revenues and earnings growth in the past
three years is particularly impressive for a $104 billion
QCOM Revenues TTM
) Glen Yeung, on the other hand, writes that Intel stands to
benefit from the current shortage of manufacturing capacity for a
long time. Intel acts as its own foundry and doesn't have to wait
in line with Apple (
) and Qualcomm and other chip makers at factories that have
orders than they can fill expediently. He even suggests Intel
might take on some small foundry contracts to make parts for
other chip makers.
Intel, with a market cap of $132.4 billion, hasn't had near
the revenue and profit gains in the past year that Qualcomm has
racked up. Then again, Intel's share price doesn't rely on them.
Intel shares have risen more over one and three years in part
because they pay
worth noticing. Intel's
is just over 3% while Qualcomm's is about half that.
Qualcomm's dominance in a high-growth business means it
continues to collect premium prices for its shares. Intel's
price/earnings ratios were particularly low last year when
pundits were predicting the imminent decline of the PC market.
But they were wrong; PC sales rallied in the first quarter.
QCOM PE Ratio
Right now, Qualcomm seems to have less to gain and more to
lose in this fight. For the moment, the PC business that Intel
rules is padding its earnings just fine. Long term, though, Intel
needs a success in Qualcomm's market, and Qualcomm needs to
maintain its dominance. Someone is going to end up crying.
Dee Gill is an editor for the
YCharts Pro Investor Service
which includes professional