With CES 2015 underway and the whole world looking at all wearable tech, TVs and 3D gaming, this is a good time to look at two stocks Qualcomm (produces chips) and Micron (produces NAND and DRAMS). These microchips are at the heart of all digital gadgets.
Comparing both the companies on
- Business performance analysis
- Fundamental analysis
- Relative Valuation
Business performance analysis
Qualcomm is in a high margin business as compared to Micron.
However, when comparing the share price performance of Qualcomm and Micron over the last year, it can be seen that Qualcomm is turning the corner.
Qualcomm is the chip supplier to Xiaomi phones which is a huge brand in China and is now making its entry in other parts of the world like India in the “less expensive” smartphone category. Moreover Qualcomm owns a stake in Xiaomi. The size of this stake is not disclosed. Qualcomm is however facing problems in China where the Chinese government is trying to limit its licensing payments. This is now a negotiating point between the two countries.
When comparing both the companies on their relative valuations, Qualcomm seems to be trading at a premium to Micron. It is likely that Micron could have a catch up trade in this context. However the premium for Qualcomm seems to be justified.
Micron has been running its operations efficiently in comparison to Qualcomm as seen from the profitability ratios.
Qualcomm has an upper hand on sales margins because of its unique chip designs, whereas Micron is in the low margin NAND and DRAM business.
On a relative valuation analysis, Micron has more upside as compared to Qualcomm. While on fundamental analysis Qualcomm has a price premium.