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Zacks Industry Outlook Highlights Qualcomm, Motorola and InterDigital
Read MoreHide Full Article
For Immediate Release
Chicago, IL – February 4, 2025 – Today, Zacks Equity Research discusses Qualcomm Inc. (QCOM - Free Report) , Motorola Solutions, Inc. (MSI - Free Report) and InterDigital Inc. (IDCC - Free Report) .
The Zacks Wireless Equipment industry is poised to capitalize on the healthy demand trends driven by a fast-track 5G deployment and transition to cloud and fiber network infrastructure upgrades. However, large-scale investments for seamless 5G evolution, margin erosion due to price wars, higher customer inventory levels, inflated raw material costs due to macroeconomic challenges, geopolitical conflicts and uncertain business conditions might erode profitability.
Despite short-term headwinds, Qualcomm Inc., Motorola Solutions, Inc. and InterDigital Inc. are likely to profit from solid growth dynamics owing to the widespread proliferation of IoT, continued fiber densification and shift to cloud services.
Industry Description
The Zacks Wireless Equipment industry primarily comprises companies providing various networking solutions, wireless telecom products and related services for wireless voice and data communications through scalable modular platforms. Their product portfolio encompasses integrated circuit devices (chips) and system software for wireless voice and data communications, analog and digital two-way radio, satellite telecommunications, wireless networking and signal processing and end-to-end enterprise mobility solutions.
The firms also provide a broad range of routing, switching and security products, video surveillance and machine-to-machine communication components that secure VPN appliances, enable intrusion detection and thwart data theft. Some firms even provide electronic warfare, avionics, robotics, advanced communications and maritime systems to the defense industry.
What's Shaping the Future of the Wireless Equipment Industry?
Cloud Networking Focus: The majority of the industry participants offer mission-critical communication infrastructure, devices, accessories, software and services that enable their customers to run businesses with increased efficiency and safety for their mobile workforce. These systems drive demand for additional device sales, software upgrades, infrastructure overhaul and expansion, as well as additional services to maintain, monitor and manage these complex networks and solutions.
The comprehensive suite of services ensures continuity and reduces risks for constant critical communication operations. The wide proliferation of cloud networking solutions is further resulting in increased storage and computing on a virtual plane. As both consumers and enterprises use the network, there is tremendous demand for quality networking equipment.
Short-Term Profitability at Stake: Although higher infrastructure investments will eventually help minimize service delivery costs to support broadband competition and wireless densification, short-term profitability has largely been compromised. Margins are likely to be affected by the high cost of first-generation 5G products, profitability challenges in China, the prolonged Russia-Ukraine war and Middle East tensions.
Uncertainty regarding chip shortage (albeit at a lesser extent) and supply-chain disruptions leading to a dearth of essential fiber materials, shipping delays and scarcity of other raw materials due to geopolitical unrest are expected to affect the expansion and rollout of new broadband networks. Extended lead times for basic components are also likely to hurt the delivery schedule and escalate production costs. High customer inventory levels, owing to a challenging macroeconomic environment and intense market volatility, pose another headwind for the companies.
Fiber Densification: To maintain superior performance standards, there is a continuous need for network tuning and optimization, which creates demand for state-of-the-art wireless products and services. Moreover, a faster pace of 5G deployment is expected to augment the telecommunications industry's scalability, security and universal mobility and propel the wide proliferation of IoT.
Expansion of fiber optic networks by carriers to support their 4G LTE and 5G wireless standards, as well as wireline connections, are likely to act as tailwinds. Fiber networks are also essential for the growing deployment of small cells that bring the network closer to the user and supplement macro networks to provide extensive coverage. The industry participants are facilitating its customers to move away from an economy-of-scale network operating model to demand-driven operations and seamlessly migrate to 5G by offering easy programmability and flexible automation through steady infrastructure investments.
Zacks Industry Rank Indicates Bullish Trends
The Zacks Wireless Equipment industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #36, which places it in the top 14% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few wireless equipment stocks that are well-positioned to outperform the market based on a strong earnings outlook, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms S&P 500, Sector
The Zacks Wireless Equipment industry has outperformed the S&P 500 composite and the broader Zacks Computer and Technology sector over the past year.
The industry has surged 33.3% over this period compared with the S&P 500 and sector’s growth of 23.9% and 25.1%, respectively.
Industry's Current Valuation
On the basis of trailing 12-month Enterprise Value-to EBITDA (EV/EBITDA), which is the most appropriate multiple for valuing telecom stocks, the industry is currently trading at 36.47X compared with the S&P 500’s 18.92X. It is also trading above the sector’s trailing 12-month EV/EBITDA of 18.82X.
Over the past five years, the industry has traded as high as 38.43X, as low as 12.06X and at the median of 24.48X.
3 Wireless Equipment Stocks to Buy
Qualcomm: Headquartered in San Diego, CA, Qualcomm is a fabless semiconductor company. It is well-positioned to meet its long-term revenue targets driven by solid 5G traction, greater visibility and a diversified revenue stream. It is increasingly focusing on the seamless transition from a wireless communications firm for the mobile industry to a connected processor company for the intelligent edge.
The buyout of Veoneer, Inc. has offered Qualcomm a firmer footing in the emerging market of driver-assistance technology. The Zacks Consensus Estimate for the current fiscal and next fiscal earnings has been revised 7.6% and 8.2% upward, respectively, since January 2024. It has a long-term earnings growth expectation of 6.6% and delivered an earnings surprise of 7.6%, on average, in the trailing four quarters.
Motorola: Based in Chicago, IL, Motorola is a leading communications equipment manufacturer and has a strong market position in bar code scanning, wireless infrastructure gear and government communications. As a leading provider of mission-critical communication products and services worldwide, it has ensured a steady revenue stream from this niche market.
The communications equipment maker intends to boost its position in the public safety domain by entering into strategic alliances with other players in the ecosystem. With a diversified portfolio and solid order trends, Motorola remains well poised to maintain a healthy growth momentum. This Zacks Rank #2 (Buy) stock has gained 44.2% over the past year. The Zacks Consensus Estimate for the current fiscal earnings has been revised 8.1% upward since January 2024.
InterDigital: Headquartered in Wilmington, DE, InterDigital is a pioneer in advanced mobile technologies that enable wireless communications and capabilities. The company engages in designing and developing a wide range of advanced technology solutions for digital cellular as well as wireless products and networks. IDCC’s global footprint, diversified product portfolio and ability to penetrate different markets are impressive.
Apart from the company’s strong portfolio of wireless technology solutions, the addition of technologies related to sensors, user interface and video to its offerings is likely to drive significant value, considering the massive size of the market it licenses. Furthermore, the company remains committed to pursuing acquisitions to drive its product portfolio and boost organic growth. This Zacks Rank #1 stock has gained 77.9% over the past year.
The stock has a long-term earnings growth expectation of 15% and delivered an earnings surprise of 163.7%, on average. The Zacks Consensus Estimate for the current fiscal earnings has been revised 136.6% upward since January 2024.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Qualcomm, Motorola and InterDigital
For Immediate Release
Chicago, IL – February 4, 2025 – Today, Zacks Equity Research discusses Qualcomm Inc. (QCOM - Free Report) , Motorola Solutions, Inc. (MSI - Free Report) and InterDigital Inc. (IDCC - Free Report) .
Industry: Wireless
Link: https://www.zacks.com/commentary/2408195/3-wireless-stocks-set-to-ride-on-healthy-sector-dynamics
The Zacks Wireless Equipment industry is poised to capitalize on the healthy demand trends driven by a fast-track 5G deployment and transition to cloud and fiber network infrastructure upgrades. However, large-scale investments for seamless 5G evolution, margin erosion due to price wars, higher customer inventory levels, inflated raw material costs due to macroeconomic challenges, geopolitical conflicts and uncertain business conditions might erode profitability.
Despite short-term headwinds, Qualcomm Inc., Motorola Solutions, Inc. and InterDigital Inc. are likely to profit from solid growth dynamics owing to the widespread proliferation of IoT, continued fiber densification and shift to cloud services.
Industry Description
The Zacks Wireless Equipment industry primarily comprises companies providing various networking solutions, wireless telecom products and related services for wireless voice and data communications through scalable modular platforms. Their product portfolio encompasses integrated circuit devices (chips) and system software for wireless voice and data communications, analog and digital two-way radio, satellite telecommunications, wireless networking and signal processing and end-to-end enterprise mobility solutions.
The firms also provide a broad range of routing, switching and security products, video surveillance and machine-to-machine communication components that secure VPN appliances, enable intrusion detection and thwart data theft. Some firms even provide electronic warfare, avionics, robotics, advanced communications and maritime systems to the defense industry.
What's Shaping the Future of the Wireless Equipment Industry?
Cloud Networking Focus: The majority of the industry participants offer mission-critical communication infrastructure, devices, accessories, software and services that enable their customers to run businesses with increased efficiency and safety for their mobile workforce. These systems drive demand for additional device sales, software upgrades, infrastructure overhaul and expansion, as well as additional services to maintain, monitor and manage these complex networks and solutions.
The comprehensive suite of services ensures continuity and reduces risks for constant critical communication operations. The wide proliferation of cloud networking solutions is further resulting in increased storage and computing on a virtual plane. As both consumers and enterprises use the network, there is tremendous demand for quality networking equipment.
Short-Term Profitability at Stake: Although higher infrastructure investments will eventually help minimize service delivery costs to support broadband competition and wireless densification, short-term profitability has largely been compromised. Margins are likely to be affected by the high cost of first-generation 5G products, profitability challenges in China, the prolonged Russia-Ukraine war and Middle East tensions.
Uncertainty regarding chip shortage (albeit at a lesser extent) and supply-chain disruptions leading to a dearth of essential fiber materials, shipping delays and scarcity of other raw materials due to geopolitical unrest are expected to affect the expansion and rollout of new broadband networks. Extended lead times for basic components are also likely to hurt the delivery schedule and escalate production costs. High customer inventory levels, owing to a challenging macroeconomic environment and intense market volatility, pose another headwind for the companies.
Fiber Densification: To maintain superior performance standards, there is a continuous need for network tuning and optimization, which creates demand for state-of-the-art wireless products and services. Moreover, a faster pace of 5G deployment is expected to augment the telecommunications industry's scalability, security and universal mobility and propel the wide proliferation of IoT.
Expansion of fiber optic networks by carriers to support their 4G LTE and 5G wireless standards, as well as wireline connections, are likely to act as tailwinds. Fiber networks are also essential for the growing deployment of small cells that bring the network closer to the user and supplement macro networks to provide extensive coverage. The industry participants are facilitating its customers to move away from an economy-of-scale network operating model to demand-driven operations and seamlessly migrate to 5G by offering easy programmability and flexible automation through steady infrastructure investments.
Zacks Industry Rank Indicates Bullish Trends
The Zacks Wireless Equipment industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #36, which places it in the top 14% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few wireless equipment stocks that are well-positioned to outperform the market based on a strong earnings outlook, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms S&P 500, Sector
The Zacks Wireless Equipment industry has outperformed the S&P 500 composite and the broader Zacks Computer and Technology sector over the past year.
The industry has surged 33.3% over this period compared with the S&P 500 and sector’s growth of 23.9% and 25.1%, respectively.
Industry's Current Valuation
On the basis of trailing 12-month Enterprise Value-to EBITDA (EV/EBITDA), which is the most appropriate multiple for valuing telecom stocks, the industry is currently trading at 36.47X compared with the S&P 500’s 18.92X. It is also trading above the sector’s trailing 12-month EV/EBITDA of 18.82X.
Over the past five years, the industry has traded as high as 38.43X, as low as 12.06X and at the median of 24.48X.
3 Wireless Equipment Stocks to Buy
Qualcomm: Headquartered in San Diego, CA, Qualcomm is a fabless semiconductor company. It is well-positioned to meet its long-term revenue targets driven by solid 5G traction, greater visibility and a diversified revenue stream. It is increasingly focusing on the seamless transition from a wireless communications firm for the mobile industry to a connected processor company for the intelligent edge.
The buyout of Veoneer, Inc. has offered Qualcomm a firmer footing in the emerging market of driver-assistance technology. The Zacks Consensus Estimate for the current fiscal and next fiscal earnings has been revised 7.6% and 8.2% upward, respectively, since January 2024. It has a long-term earnings growth expectation of 6.6% and delivered an earnings surprise of 7.6%, on average, in the trailing four quarters.
It has a VGM Score of B. The stock has gained 20.1% in the past year. Qualcomm sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Motorola: Based in Chicago, IL, Motorola is a leading communications equipment manufacturer and has a strong market position in bar code scanning, wireless infrastructure gear and government communications. As a leading provider of mission-critical communication products and services worldwide, it has ensured a steady revenue stream from this niche market.
The communications equipment maker intends to boost its position in the public safety domain by entering into strategic alliances with other players in the ecosystem. With a diversified portfolio and solid order trends, Motorola remains well poised to maintain a healthy growth momentum. This Zacks Rank #2 (Buy) stock has gained 44.2% over the past year. The Zacks Consensus Estimate for the current fiscal earnings has been revised 8.1% upward since January 2024.
InterDigital: Headquartered in Wilmington, DE, InterDigital is a pioneer in advanced mobile technologies that enable wireless communications and capabilities. The company engages in designing and developing a wide range of advanced technology solutions for digital cellular as well as wireless products and networks. IDCC’s global footprint, diversified product portfolio and ability to penetrate different markets are impressive.
Apart from the company’s strong portfolio of wireless technology solutions, the addition of technologies related to sensors, user interface and video to its offerings is likely to drive significant value, considering the massive size of the market it licenses. Furthermore, the company remains committed to pursuing acquisitions to drive its product portfolio and boost organic growth. This Zacks Rank #1 stock has gained 77.9% over the past year.
The stock has a long-term earnings growth expectation of 15% and delivered an earnings surprise of 163.7%, on average. The Zacks Consensus Estimate for the current fiscal earnings has been revised 136.6% upward since January 2024.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.