I write a lot about a certain California-based company that is poised to grow exponentially with the global smart device explosion over the next decade; a company that has loads of cash on the books and no debt, offers investors a dividend, and has great products, management and a history of innovation.  A company with a patent portfolio worth billions and a P/E ratio that’s well below its projected growth rate.

Well, as it turns out, there are two such companies out there, and while the market overall is still struggling to clear the fiscal cliff hurdle—a wasted distraction for investors (http://blogs.marketwatch.com/cody/2012/12/13/not-your-grandfathers-stock-market/)—it’s time to initiate a position in Qualcomm.

As a key smartphone and tablet Revolution supplier, I’ve had my eye on Qualcomm for a long time, but I’ve been waiting all year for an Apple-like pullback before starting my tranche buys.  Alas, Qualcomm hasn’t fallen as far as from the tree as Apple has in recent months, and while I still plan on using a tranche method of scaling into a full-sized long-term investment position and thus am putting QCOM in the portfolio, I think this company is about to ramp up its already revolutionary technologies.

And one other note for perspective– year-to-date, shares in Apple are still up nearly 30% in the last year, whereas, at yesterday’s close of $62.04/share, QCOM is up 15%.  That’s respectable, but we think there’s a lot more upside ahead.

First, let’s examine Qualcomm’s valuation—it’s very attractive and frankly reminiscent of Apple.  At the end of the third quarter (QCOM’s fiscal year end), Qualcomm had $15.75 in cash and investments per share on the books.  That means you’re really buying the enterprise for just $45.66 per share, or about $77.8 billion.  In fiscal 2013, analysts expect revenue of $23.6 billion and earnings of $4.31 per share.  Thus the enterprise is valued at just 10.6x run-rate earnings, and 3.3x revenue.  Revenue growth last year was 28% and in fiscal 2013 it is forecast to be 23%.  Net income grew a stellar 40% last year and analysts expect another 20% increase next year.  Based on that valuation alone, I like my odds.

But let’s take a closer look at the general outlook for the business and Qualcomm’s potential in particular.  I talk a lot about the smart device revolution, and all the latest data reinforce, yet again, my bullishness on the sector.

S device unit shipments, including PCs, laptops, tablets and smartphones, are expected to hit 1.2 billion this year, and grow at a compound annual growth rate of nearly 18% through 2016, to a total of 2.1 billion.  Over that period, tablets are expected to overtake shipments of not only desktop computers, but laptops too.  (Qualcomm’s processors are in iPhones and iPads.)  And then of course there’s the expected growth in smartphone sales, which we’ve already covered extensively.

In the latest quarter alone, 303.6 million devices shipped, up 27% over the prior year.  Samsung, Apple and China-based Lenovo were the top three device makers in terms of overall market share.  Qualcomm sells its chipsets to both Samsung and Apple, which combined accounted for 37% of the devices sold in the last quarter.

More newly released data that’s bullish for Qualcomm:  Gartner Group said this week that Qualcomm “surged” in 2012 to become the #3 semiconductor vendor worldwide (by revenue), up from #6 in 2011.  In fact, Qualcomm and another of our RI buys, Broadcom, were the only two chip vendors, out of the top 10 worldwide, who managed to grow their revenue this year.  That’s the Apple effect we’ve been writing about for a few years now.  And while Samsung and Apple may be duking it out in the courts and in the market share wars for smartphones and tablets, Samsung lost share in the semiconductor market this year, with just 8.4% according to Gartner.  Qualcomm’s solid performance goes beyond the growth in smartphone sales.  The company is also profiting from the growth of 3G and LTE technology adoption in emerging regions like China and India.

But wait, there’s more!  As if all of the above data weren’t enough to get you salivating over QCOM, an important point I want to make today is that Qualcomm isn’t just an Apple supplier (although we were of course encouraged by just how strong Apple’s early iPhone 5 sales in China were last weekend).  Qualcomm’s Snapdragon processors can be found in Samsung’s Galaxy 3, Google’s Nexus 4, Nokia’s Lumia 920 and Sony’s Xperia and Play.  The Samsung relationship in particular is key—it’s the number one seller of (lower-end) smartphones worldwide, and likely still expanding.  Lastly, there’s the former Texas Instruments OMAP processor business that’s up for grabs.  These are the chips that have powered Kindles and Nooks.  A win here for Qualcomm could also translate to millions in sales down the road.

Finally, a word about Qualcomm’s management team and ability to innovate.  The company was founded by electrical engineer and former MIT professor Irwin Jacobs, who pioneered the Code Division Multiple Access (CDMA) standards that now underlies most wireless networks.  LTE—the fast-spreading 4G standard worldwide—is based on CDMA technology and Qualcomm collects royalties (to the tune of more than $6 billion last year) from everyone who builds on the standard.  Today the company is run by Jacobs’ son Paul, himself also a PhD engineer.  In a recent Wall Street Journal interview, Dr. Jacobs described Qualcomm’s efforts to expand its market share for the Snapdragon processor series.  He also talked about his vision for the future:  “We have a project to improve the capacity of wireless networks by 1,000 times.”   How do you like them apples?

We’re adding Qualcomm to the portfolio, starting with common stock first, about 1/3 as much of the final-sized position as I want to own in QCOM, planning to scale into more in coming days and weeks.