3. QUALCOMM: SoC Chip
SoC Chip: 24-core ARMv8-A SoC
• Developing ARM based server chips over
2 yrs.
• Hyper-scale data centre customers able to
use SoC
• Infrastructure as-a Service (IaaS)
• Platform as-a Service (PaaS)
• Big data and machine learning
• a microchip with electronic circuits and
parts for a given system, smartphone,
wearable computer, on a single integrated
circuit
• Integrated Circuit - integrates all
components of a CPU into a single chip
• Signal functions are Digital, Analog ,
Mixed-signal and radio-frequency
• powerful processors, capable of running
software such as the desktop versions of
Windows and Linux that need external
memory chips (flash/RAM)
SoC Design Flow
NXP Semiconductors
4. NXPI Acquisition
• Diversifying sales mix
• Gives QCOM ability to
manufacture chips in-house
Product Catalog
• Processors
• Bluetooth Products
• Cellular Modems
• Wi-Fi Products
Brands
• 2net Health Information Platform
• AllPlay Smart Media Platform
• QUALCOMM Halo WEVC
• Snapdragon Processors & Modems
5. Financial:
Decreasing
Market Capitalization & Enterprise Value & total
revenue YoY growth
Increasing margins Revenue segments, gross
profit, EBITDA & Net Income margins.
Valuation:
Vs. its own 1 yr. historical average
• Currently trading at a premium above all its 1
yr. historical valuation metrics
Vs. its competitors 2 yr. historical price multiples
• QCOM’s BF P/E trading at a 20% Premium
• BF EV/EBITDA trading at a 22% premium
• BF EV/EBIT trading at a 45% premium
• BF EV/Revenue trading at a 42% premium
• It is trading at a price slightly above +1
Standard Deviation from its 2-yr. multiple
average mean at 13.9x Blended Forward P/E.
• Multiples are in-line with its own historical
multiples
Catalyst:
NXP acquisition, I-o-T, SOC & Autonomous Vehicles
Qualitative:
• The NXP acquisition sets up the combined
company for future revenue development
• I-o-T, Autonomous cars
• SOC chips (Software-on-Chip).
• products include baseband, radio-frequency,
and power amplification chips.
• QCT is the largest segment of QUALCOMM,
accounting for about 67% of sales. QCT
products go into mobile phones, navigation
devices, notebook computers, and now
automated cars & other consumer
electronics.
• QUALCOMM pioneered the use of CDMA in
commercial wireless applications and is the
leading supplier of CDMA chipsets.
6. DCF Valuation Recommendation:
Equal weight 0.66%
Long-term core holding
2-3 yr. Investment Horizon
Assumptions
• WACC: 9.6%
• Perpetuity Growth Rate: 6.9%
• Exit Enterprise Value/EBITDA: 12.7x
• Value: 2.0%
• Discount Rate: 10%
• Year 5 FCF Growth: 2.0%
• Dividend & Yield: 3.2%
QCOM Price Targets:
• 12 Month Price Target $ 74.32
• Last Price $ 68.59
• Price Spread $ 5.73
• Return Potential +8.35%
NXPI Price Targets
• 12 Month Price Target: $110.71
• Last Price: $98.76
• Price Spread: $11.95
• Return Potential: +12.10%
Consensus Rating:
• Group average 3.57
• QCOM: 4.07, NXPI: 3.37
• INTC: 3.95
Return % Potential:
• Group average 0.74%
• QCOM: 8.62%, NXPI: 11.95%
• INTC: 13.60%
Valuation:
• QCOM is trading above its 2yr.
historical average when compared
to itself and its competitors.
7.
8.
9. Financial:
Intel’s 3rd quarter earnings is up 8.7% YoY
Decreasing Client Computing revenue
Increasing revenue
Data center 3yr. growth trend of 14.15%
Increasing I-o-T revenue and company share
of income.
Qualitative:
• Growing Business Intelligence data group
• Market for I-o-T is up 19% this year
• Autonomous driving will continue to be complex
as computing/chipset requirements will grow
exponentially.
• positioned to provide end-to-end autonomous
software solutions from the vehicle to the cloud.
• The I-o-T will drive growth to the Cloud as
“connected things” interact with cloud
infrastructure.
• Data Center business delivers almost 1/3 of Intel’s
operating margin, and this segment is expected to
have revenue growth of 15% through 2018.
Catalyst:
Autonomous Vehicles, Intel Xeon chips
designed for machine learning, scoring
system used to automate driving, Evolution
to 5G connectivity.
Valuation:
Vs. its competitors 2yr. Historical values
• trading at a discount for all the valuation
metrics
• BF P/E metric with a 25% discount
• BF EV/EBITDA with a 27% discount
• BF EV/EBIT 31% discount
• BF EV/Revenue with 10% discount
• LF P/BV with 21% discount
Vs. its own 2 yr. Historical Multiples
• Trading at a premium using the metrics
• BF EV/EBITDA, BF EV/EBIT, BF EV/Revenue
• Trading at -1 Standard Deviation at 12.5x
from its BF P/E Equity multiple via its 2yr.
Multiple average value of 13.4x.
10. DCF Valuation Recommendation:
Equal weight 1.1%
Long-term core holding
2-3 yr. Investment Horizon
Assumptions
• WACC: 9.2%
• Perpetuity Growth Rate: 7.8%
• Exit Enterprise Value/EBITDA: 15.3x
• Value: 3.7%
• Discount Rate: 9%
• Year 5 FCF Growth: 8%
• Dividend & Yield: 3.0%
Price Targets:
• 12 Month Price Target $ 40.18
• Last Price $ 35.36
• Price Spread $ 4.82
• Return Potential +13.64%
Consensus Rating:
• Group average 3.57
• INTC: 3.95
• QCOM: 4.07, NXPI: 3.37
Return % Potential:
• Group average 0.74%
• INTC: 13.60%
• QCOM: 8.62%, NXPI: 11.95%
Valuation:
• INTC is trading above its 2yr. historical average
when compared to itself and below its 2yr.
average when compared to its competitors.
11. Financial:
Decreasing revenue totals due IBM divesting itself of less profitable
business segments, Focusing on profitable segments
Sales are smaller sales in relation to historical levels but keeps more
revenue via increasing profit margins
Net Income margin in 2016 expected to be 16.6% which is 1.6%
below its previous 3yr. average of 18.4% NI margin
Free cash Flow increased 12.27% from December 2015-16
IBM had an effective tax rate of 16.19% in yr. 2015, which down
30.88% from its 2014 tax rate of 21.19%
Sustainable Growth rate has increased from 51.03% in yr. 2010
which increased +25.34% to 63.96% by yr. 2015
Qualitative:
• IBM services secure data, Hybrid Cloud
Infrastructure, Responsive IT, IBM Security Pinpoint
detect
• IBM poised to benefit from AI, started 5 yrs. ago,
with Watson and were one of the first players in
this field
• Benefits from AI include solutions for businesses,
healthcare and cybersecurity
• Past 3 yrs. made 34 acquisitions strengthens AI
position, Cloud Infrastructure, and Cybersecurity.
Trend expected to continue as IBM monetizes AI,
expected to increase revenue
Catalyst:
IBM expanding AI opportunities, especially in healthcare and cybersecurity
Valuation:
vs. its competitor’s 2yr. historical price
• Trading at a discount of 20% using the BF P/E ratio
• Trading at a 22% premium to BF EV/EBITDA
• 17% premium to BF EV/EBIT
• 64% premium to BF EV/EBIT
• 160% premium to its LF P/BV
Vs. its own 2yr. historical values
• Trading at a premium above all its previous
average multiples.
• BF P/E 2yr. average mean multiple is 10.2x
• Trading about 11.7x BF P/E
• Trades +1.5 Standard Deviations above the mean
12. DCF Valuation
Recommendation:
No Position
1-2 yr. Analysis Horizon
Assumptions
• WACC: 6.8%
• Perpetuity Growth Rate: 1.6%
• Exit Enterprise Value/EBITDA: 9.8x
• Value: 2.0%
• Discount Rate: 7%
• Year 5 FCF Growth: 2.0%
• Dividend & Yield: 3.5%
Price Targets:
• 12 Month Price Target $158.53
• Last Price $162.66
• Price Spread $-4.13
• Return Potential -2.54%
Consensus Rating:
• Group average: 3.81
• IBM: 3.32
Return % Potential:
• Group average: 10.93%
• IBM: -2.55%
Valuation:
IBM is trading above its 2yr. historical average
when compared to itself and its competitors.
13. Financial:
Increasing revenue margins
21.7% YoY from yr. 2015
Decreasing margins include:
Gross profit margin of 37.7%
*decreasing -23.09% YoY
All margins slightly decreased over yr. 2016.
*EBITDA, Net Income & EPS margins
Due to costs with King Digital purchase
Qualitative:
• Playing & watching Online gaming
• Major League Gaming
• monetize/grow championship
competitions for gamers.
• ESPN launched web-based e-gaming site
dedicated to these types of events and we
can expect them to grow.
• Digital content & game add-ons expected to
continue to be a hit.
• Acquisition of King Digital expand beyond
console gaming into mobile market.
Catalyst:
Game content expanded synergies via their
combined Activision, Blizzard & King Digital
content creation models.
Valuation:
vs. its competitor’s 2yr. historical price
ATVI multiples are all increasing
• ATVI’s BF P/E is trading at a 6% premium
• BF EV/EBITDA trading at a 38% premium
• BF EV/EBIT at a 33% premium
• BF EV/Revenue at a 78% premium
• LF P/BV is also trading at a 12% premium
vs. its own 2 yr. historical average multiple
• ATVI overall trades about its own average
• Currently trading around -0.5 Standard Deviation below
its 2yr. average Multiple mean of 18.9
• ATVI has a 17.6 BF P/E multiple
• trading at a premium to its competitors
• Multiples are in-line with its own historical multiples.
Console Games 51.27%
Handheld/Smart Phone Games 8.96%
Online Game Websites 32.14%
Other Games Software 7.63%
Activision Blizzard
14. DCF Valuation Recommendation:
Equal weight 0.15%
Long-term core holding
2-3Yr. Investment horizon
• Assumptions
• WACC: 8.4%
• Perpetuity Growth Rate: 5.8%
• Exit Enterprise Value/EBITDA: 19.4x
• Value: 4.6%
• Discount Rate: 8%
• Year 5 FCF Growth: 13%
• Dividend & Yield: 0.7%
• Price Targets:
• 12 Month Price Target $ 49.59
• Last Price $ 37.12
• Price Spread $ 12.48
• Return Potential +33.62%
Consensus Rating:
• Group average 4.50
• ATVI: 4.65
Return % Potential:
• Group average 12.66%
• ATVI: +33.78%
Valuation:
• ATVI is trading below its 2yr. historical
average when compared to itself and
about its historical average when
compared to its competitors.
