Narrow-Moat Qualcomm Remains a Smartphone Leader While on the Road to Diversification

We expect Qualcomm’s chip business (QCT) and licensing business (QTL) to continue to generate healthy cash flow and reinforce the company’s narrow moat rating, as Qualcomm should remain an industry leader in chipsets and IP for 5G and below. Apple’s decision to build its own baseband chips, or modems, to displace Qualcomm should be a medium- to long-term headwind, but not a death blow, especially as Qualcomm is poised to grow in automotive and Internet of Things semis. In licensing, Qualcomm has been able to withstand a host of government inquiries and customer pushback in recent years, and we think QTL will maintain a hearty stream of high-margin royalty revenue over time.