Wirelesses tech giant Qualcomm (QCOM) is branching out to accelerate its growth. In a recent development, Qualcomm and an investment group SSW Partners announced the acquisition of automotive tech company Veoneer (VNE).
Read more about the transaction here: Qualcomm and SSW Partners Reach Agreement for Veoneer Acquisition
This is a significant move, especially as the handset market is reaching maturity and growth is decelerating. Highlighting the maturing handset market, Jefferies analyst Kyle McNealy stated that 5G would continue to drive Qualcomm’s performance in the future. However, Qualcomm could find it tough to generate “incremental growth at the corporate level.”
The analyst stated that Qualcomm is a leader in cellular connectivity, thanks to its robust “IP portfolio across application and connectivity solutions for handsets, autos, and IoT.” But the “handset market is a big exposure for Qualcomm (66% of sales / 70% of EBT) and it’s maturing.”
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Nevertheless, Qualcomm has been taking initiatives to diversify its revenues organically and through acquisitions. Furthermore, the non-handset revenues at Qualcomm are growing at a faster pace. Validating the company’s diversification efforts is its projection of non-handset revenue of $10 billion in 2021.
Coming back to the Veoneer acquisition, the deal will open up another area of opportunity for Qualcomm by strengthening its ADAS (Advanced Driver Assistance Systems) platform in the automotive segment.
Per the agreement, SSW Partners will sell Veoneer’s Arriver business to Qualcomm soon after completing the deal. Notably, Qualcomm has worked with Arriver in the past. In response to the agreement, Qualcomm CEO Cristiano Amon said that “Qualcomm is the natural owner of Arriver. By integrating these assets, Qualcomm accelerates its ability to deliver a leading and horizontal ADAS solution as part of its digital chassis platform.”
Overall, Qualcomm’s diversification strategy could help offset the deceleration in the handset segment. I maintain a Bullish outlook on Qualcomm stock.
Wall Street has a positive outlook on QCOM stock, and its analyst rating consensus of Strong Buy is based on 10 Buys and 3 Holds. Furthermore, TipRanks’ Stock Investors tool indicates that investors who hold portfolios on TipRanks currently have a Very Positive outlook on Qualcomm stock, with 2.8% of these investors increasing their exposure in the last month.
Meanwhile, the average Qualcomm price target of $179.75 implies 41% upside potential to current levels.
Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.
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