Qualcomm vs. Broadcom: Which is a Better Buy?
Source: theglobeandmail.com
Qualcomm and Broadcom: A Competitive Overview
Qualcomm Technologies Inc. and Broadcom Inc. are prominent semiconductor companies specializing in wireless communication technologies, including 5G connectivity and mobile processors. Qualcomm offers chip designs for mobile devices, PCs, XR, automotive, wearables, robotics, connectivity and AI. They have an intellectual property portfolio that includes 3G, 4G, and 5G technologies.
Broadcom focuses on digital and mixed-signal complementary metal oxide semiconductor-based devices and analog III-V-based products. Their semiconductor solutions are used in enterprise and data center networking, home connectivity, set-top boxes, broadband access, telecommunication equipment, smartphones and base stations, data center servers and storage systems, factory automation, power generation and alternative energy systems and electronic displays.
Both Qualcomm and Broadcom can meet the demands of business enterprises with growing AI use in PCs, smartphones, automotive and IoT.
Qualcomm's Strengths and Challenges
Qualcomm is focusing on transitioning from a wireless communications firm to a connected processor company. They introduced the Qualcomm X85 5G Modem-RF, powered by Qualcomm’s 5G AI Processor, designed to deliver 5G connectivity to Android users. This solution is gaining traction from network operators.
Qualcomm is also strengthening its position in the mobile chipsets market with new gaming chipsets, including Snapdragon G3 Gen 3, Snapdragon G2 Gen 2 and Snapdragon G1 Gen 2 chips. Samsung has used the Snapdragon 8 Elite Mobile Platform for its premium S25, S25 Plus and S25 Ultra devices. Qualcomm is emphasizing the development of chipsets for AI PCs and has agreed to acquire MovianAI to enhance AI research.
Despite these efforts, Qualcomm faces competition from Intel in the AI PC market. A shift in OEM share has reduced Qualcomm's opportunity to sell chipsets from the Snapdragon platform. They also face competition from Samsung’s Exynos processors in the premium smartphone market, and MediaTek in the mid-range and budget smartphone market. Broadcom and NVIDIA are also competitors. Qualcomm’s operations in China may be affected by U.S.-China trade tensions.
Broadcom's Strengths and Challenges
Broadcom benefits from strong demand for networking products and custom AI accelerators (XPUs). XPUs are needed to train Generative AI models, requiring complex integration of compute, memory and I/O capabilities. Its next-generation XPUs are in 3 nanometers and will be the first to market in that process node. Broadcom expects to ship these XPUs to hyperscale customers in the second half of fiscal 2025. The company sees opportunities in AI as hyperscalers develop their XPUs.
Broadcom has been acquiring companies to diversify beyond semiconductors and strengthen its presence in infrastructure software. Acquisitions of CA and Symantec’s enterprise security business have expanded its addressable market. The acquisition of LSI Corporation helped it diversify into the storage chip market. The addition of Brocade has enabled Broadcom to penetrate the FC SAN market, while the acquisition of VMware has benefited Infrastructure software solutions.
Broadcom faces competition in its operating markets, leading to pricing pressure. In the FBAR technology market, it faces competition from Skyworks SAW filters. The acquisition of Brocade makes it a direct competitor of Cisco in the FC SAN market. Broadcom’s acquisitions have increased integration risks.
Financial Performance and Outlook
The Zacks Consensus Estimate for Qualcomm’s 2025 sales and EPS indicates year-over-year growth of 11.8% and 15.6%, respectively. The EPS estimates have been trending northward. The Zacks Consensus Estimate for Broadcom’s 2025 sales suggests year-over-year growth of 21%, while EPS is expected to rise 35.9%. The EPS estimates have also been trending northward.
Over the past year, Qualcomm has declined 30.9% against the industry’s growth of 14.1%. Broadcom has gained 62.5% over the same period.
Qualcomm's shares currently trade at 12.06 forward earnings, lower than 31.26 for Broadcom.
Both Qualcomm and Broadcom carry a Zacks Rank #3 (Hold). Both companies expect their sales and profits to improve in 2025. Broadcom has shown steady revenue and EPS growth, while Qualcomm has faced a bumpy road. Broadcom has long-term earnings growth expectations of 19.1%, compared to Qualcomm's 9.1%. Broadcom seems to be a better investment option.