Qualcomm Incorporated (QCOM) and Synaptics Incorporated (SYNA) are two prominent players in the global semiconductor market. QCOM, in San Diego, Calif., is a multinational semiconductor and telecommunications equipment company that develops and delivers products and services based on code-division multiple access (CDMA) technology used in digital wireless communications equipment and satellite ground stations. In comparison, San Jose, Calif.-based SYNA develops and supplies custom-designed semiconductor products and solutions used in mobile computing, communications, PCs, IoT, and other electronic devices worldwide. The company also provides audio input and output System-On-Chips (SoCs), high-definition video and vision SoCs, touch controllers, touchpads, display drivers, and fingerprint sensors.

Despite the current semiconductor chip shortage, which has impacted the production of various industries worldwide, the global semiconductor industry witnessed 27.6% year-over-year sales growth in the third quarter. And investor optimism in this space is evident in the SPDR S&P Semiconductor ETF’s (XSD) 21.1% gains over the past month versus the SPDR S&P 500 Trust ETF’s (SPY) 6.7% returns.

Increasing investments by governments and enterprises to address the global chip shortage are expected to stabilize chip supply by the end of 2022. This, along with recent technological breakthroughs in the chip manufacturing process, should drive the industry’s growth. The global semiconductor market is expected to grow at a 7.7% CAGR to $778 billion by 2026. So, both QCOM and SYNA should benefit.

But, while QCOM’s shares have  gained 21% in price over the past nine months, SYNA has surged 94.4%. SYNA is a clear winner with 43.9% gains versus QCOM’s 31.8% returns in terms of the past month’s performance. But which of these stocks is a better pick now? Let’s find out.

Click here to checkout our Semiconductor Industry Report for 2021

Latest Developments

On October 4, 2021, QCOM and SSW Partners, a New York-based investment partnership, reached a definitive agreement to acquire Veoneer, Inc. (VNE) in a $4.5 billion all-cash transaction. Having already demonstrated a successful partnership with VNE’s Arriver business, integrating Arriver’s Computer Vision, Drive Policy, and Driver Assistance assets into its leading Snapdragon Ride ADAS solution should accelerate QCOM’s ability to deliver a leading and horizontal ADAS solution as part of its digital chassis platform.

On October 18, 2021, SYNA introduced its newest AudioSmart AS33970 headset platform SoC, the world’s first highly integrated AI-enabled Environmental Noise Cancellation (ENC) and hybrid Active Noise Cancellation (ANC) single-chip solution integrating neural and voice processing engines for optimal audio performance. Compared to other headset solutions, the AS33970 SoC’s best-in-class power consumption enables a 35-55% improvement in battery life, significantly reducing chip count from five to three and lowering the number of microphones needed.

Recent Financial Results

QCOM’s non-GAAP revenues for its fiscal fourth quarter, ended September 26, 2021, increased 43.4% year-over-year to $9.32 billion. The company’s non-GAAP operating income came in at $3.40 billion, up 67.9% from the prior-year period. While its non-GAAP net income increased 74.7% year-over-year to $2.92 billion, its non-GAAP EPS increased 75.9% to $2.55. The company had $7.12 billion in cash and cash equivalents as of September 26, 2021.

For its  fiscal first quarter, ended September 30, 2021, SYNA’s net revenue increased 13.5% year-over-year to $372.70 million. The company’s non-GAAP gross profit was  $216 million, representing a 32.4% rise from the prior-year period. Its non-GAAP income from operations was  $127.60 million for the quarter, up 68.6% from the prior-year period. QLYS’ non-GAAP net income came in at $108.70 million, indicating a 63% increase from the prior-year period. Its non-GAAP EPS increased 44.9% year-over-year to $2.68. The company had $347.30 million in cash and cash equivalents as of September 30, 2021.

Past and Expected Financial Performance

QCOM’s revenue and total assets have increased at CAGRs of 14.1% and 8%, respectively, over the past three years. And the  company’s EBITDA has grown at a 28.7% CAGR over the past three years.

Analysts expect QCOM’s EPS to increase 24.7% year-over-year in the current year and 6.9% next year. Its revenue is expected to increase 18.2% year-over-year in the current year and 6% next year. And the company’s EPS is expected to grow at a 30.1% rate per annum over the next five years.

In comparison, SYNA’s EBITDA and total assets have grown at CAGRs of 36.3% and 5.3%, respectively, over the past three years. The company’s revenue has declined at a 5.3% CAGR over the past three months.

SYNA’s EPS is expected to rise 32.2% year-over-year in the current year and 9.7% next year. Its revenue is expected to rise 15% in the current year and 9.7% next year. Analysts expect the stock’s EPS to grow at a 15% rate  per annum over the next five years.

Valuation

In terms of non-GAAP forward PEG, SYNA is currently trading at 1.40x, which is 154.5% higher than QCOM’s 0.55x. In terms of forward EV/Sales, QCOM’s 4.74x compares with SYNA’s 6.41x.

Profitability

QCOM’s trailing-12-month revenue is almost 24.3 times higher than SYNA’s  Also, QCOM is more profitable, with a 33.9% EBITDA margin versus SYNA’s 23%.

Furthermore,  QCOM’s 112.9%, 15.9%, and 25.2% respective ROE, ROA, and ROTC compare with SYNA’s 13.3%, 6.6%, and 8.1%.

POWR Ratings

While QCOM has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, SYNA has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

In terms of Quality, QCOM has been graded a B, which is consistent with its higher-than-industry profitability ratios. QCOM’s 57.5% trailing-12-month gross profit margin is 16% higher than the 49.6% industry average. In comparison, SYNA’s C grade for Quality is in sync with its relatively lower profit margins. The company has a 49.9% trailing-12-month gross profit margin, which is 0.7% higher than the 49.6% industry average.

QCOM has a B grade for Value, which is consistent with its lower-than-industry valuation ratios. It has an 11.86x forward EV/EBITDA, which is 31.3% lower than the 17.24x industry average. SYNA’s C grade for Value is in sync with its slightly higher-than-industry valuation ratios. The company’s 19.02x forward EV/EBITDA is 10.3% higher than the industry average.

Of the 44 stocks in the C-rated Technology - Electronics industry, SYNA is ranked #22. In comparison, QCOM is ranked #9 of 102 stocks in the A-rated Semiconductor & Wireless Chip industry.

Beyond what we have stated above, our POWR Ratings system has also rated QCOM and SYNA for Growth, Momentum, Stability, and Sentiment.

Get all SYNA ratings here. Also, click here to see the additional POWR Ratings for QCOM.

The Winner

The semiconductor industry’s growth with huge investments by governments and enterprises should benefit both QCOM and SYNA. However, its relatively lower valuation and higher profitability we think make QCOM a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Technology - Electronics industry, and here for those in the Semiconductor & Wireless Chip industry.

Click here to checkout our Semiconductor Industry Report for 2021

QCOM shares were trading at $159.60 per share on Wednesday afternoon, down $7.14 (-4.28%). Year-to-date, QCOM has gained 6.30%, versus a 25.04% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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