Qualcomm is surest bet in the mobile market

Riding the avalanche of new smartphones and tablets released for the holiday season, Qualcomm reported better-than-expected sales and earnings for its fiscal first quarter.

By TheStreet Staff Feb 7, 2013 4:48PM

Qualcomm headquarters in San DiegoBy Richard Saintvilus, TheStreetthestreet logo

 

Without question, the pursuit of supremacy in the mobile-device space is the hottest battle in the market. As Apple (AAPL) and Google (GOOG) battle to drive each other out of business, there are chip companies, including Qualcomm (QCOM) and Intel (INTC), looking to dominate form factors with each new mobile device.

 

With each passing quarter, it's evident that Qualcomm is winning its battles with Intel, by an ever-greater margin.


This trend bodes well for Qualcomm, which looks to be the surest bet in the volatile but growing mobile-device market.


And if fiscal-first-quarter earnings are any indication, this chip giant is not done rewarding investors.


Despite concerns that slower-than-expected iPhone sales might signal weakness in the smartphone market, Qualcomm’s strong quarter demonstrated that sales gains from other companies that use its chips and technology in their devices, including Samsung and Sony (SNE), were able to offset the drag from Apple.


Qualcomm was coming off an excellent fourth quarter, during which profits surged 20% and revenue rose by 18%. But Qualcomm on Feb. 6 blew those rosy numbers away:  For the three months through Dec. 30, the wireless technology giant posted net income of $1.9 billion, up 36% year over year and a 50% improvement from the preceding quarter.


Qualcomm posted a record 182 million chip shipments in the quarter, ahead of analysts’ forecasts of about 175 million shipments.

 

Its first-quarter revenue rose 29% to $6 billion. Earnings per share were impressive, arriving at $1.09, up 35% year over year and 49% sequentially. Chip revenue rose 34% in the period, with no change in shipments or average selling prices.


Gaining market share 

Qualcomm is benefiting as consumers in emerging markets like China buy smartphones to replace talk-and-text devices. In addition, Qualcomm is seen as holding a technical lead over competitors in integrated high-speed 4G technology, allowing it to gain market share in high-priced smartphones and tablets in developed countries.


Qualcomm reported a 22% increase in license revenue in the first quarter and a 6% increase in its average selling price. More impressively, the San Diego company made more money during the quarter, as gross margins advanced by 20 basis points, besting Wall Street estimates. 


By contrast, Texas Instruments (TXN) just posted revenue of $2.98 billion -- down 12% sequentially and 13% year over year. It was the fifth consecutive quarter of declining revenue for the company, which is not expecting much sequential improvement; executives issued revenue guidance that forecasts a 6% decline.

 

This means that Texas Instruments expects to continue to lose market share, to Qualcomm as well as to Intel, which seems to be on a verge of a comeback after posting fourth-quarter revenue of $13.5 billion. Considering Intel's recent struggles, this qualifies as a win.

 

The dominance of Qualcomm continues to confound skeptics. As Qualcomm  is one of Apple's major suppliers, recent concerns about supply-chain issues at the Cupertino, Calif., company had suppressed expectations for a range of suppliers, including Qualcomm. Clearly, Qualcomm is not solely dependent on Apple for its growth. 


Expectations for a stellar 2013

Qualcomm continues to affirm why it has not only one of the best businesses in the entire market, but also one of the best management teams. And chip rivals such as Broadcom (BRCM) and Nvidia (NVDA) will find it increasingly challenging to make a dent in Qualcomm's business.

 

To that end, Qualcomm continues to invest heavily in R&D to ensure that its chip technology remains the top choice for Apple, Samsung and the rest of the phone rivals. 


Another reason to love the stock is that management raised revenue guidance -- suggesting that 2013 might be an even bigger year.

 

The stock looks poised to sustain its momentum as long as the company is perceived as a winner regardless of which competitor comes out on top in the device market.

 

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