Why Qualcomm is headed up

The company's chip business is deep, and its licensing fees are growing by double digits.

By Jim J. Jubak Feb 1, 2013 10:40AM
Businessman in car with smartphone -- Image Source, Image Source, Getty ImagesWhen I added shares of Qualcomm (QCOM) to my Jubak's Picks portfolio on Oct. 10, 2012, I argued that the company's keystone position in the wireless industry as a supplier to both Samsung and Apple (AAPL) made the stock a winner no matter which company came out ahead in the smartphone wars.

After both Apple and Samsung reported sales and earnings that disappointed the markets, Qualcomm Wednesday reported an earnings and revenue beat. It also raised guidance for the next quarter based on just that positioning. Shipments of Qualcomm's modem chips -- sold to both Apple and Samsung (and other smartphone makers) -- reached 182 million units, up 17% from the same quarter (the first quarter of the company's fiscal year) of fiscal 2012.

Sales of actual chips are only part of Qualcomm's revenue stream. The company also makes money from collecting licensing fees when other manufacturers use its technology. (As the industry as a whole grows, so do Qualcomm's licensing revenues.) Licensing fees climbed 20% in the quarter.

Earnings for the company's fiscal first quarter were $1.26 a share (excluding non-recurring items), 14 cents above the Wall Street consensus. Revenue at $6.02 billion, up 28.6% year over year, was slightly above the $5.9 billion consensus.

For the next quarter, the fiscal second quarter of 2013, Qualcomm told Wall Street it expects earnings per share of $1.10 to $1.18 (against an analyst consensus before the call of $1.10) and revenue of $5.8 billion to $6.3 billion (versus a Wall Street consensus of $5.89 billion). For all of fiscal 2013, Qualcomm raised its earnings per share guidance to a range of $4.25 to $4.45 from its prior guidance of $4.12 to $4.32. The Wall Street consensus was $4.32.

In the chip business, you're only as good as your next technology. Here Qualcomm has built a commanding edge for its modem chips by investing heavily in the next generation LTE technology now being rolled out of the smartphone industry. The company's technology edge is big enough that Credit Suisse sees Qualcomm expanding its market share of industry revenue for modems from the current 39% to 44%.

On a different but related front, Qualcomm's Snapdragon mobile chipset continues to make progress at broadening the company's sales base beyond modems to complete chip platforms and beyond smartphones to tablets. In the conference call, the company said that 600 devices using Snapdragon have been announced with 450 base designs in development and 90 designs in development for the 600 and 800 Snapdragon processors.

I'm raising my 12-month target price for Qualcomm shares to $82 from my previous target of $77.

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At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. The fund did own shares of Qualcomm as of the end of September. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 
Feb 3, 2013 11:55PM
Yo VL: Very Stupid Commentary. I'm long QCOM.
Feb 2, 2013 8:31AM
More techno-babble. As more and more people opt-out of money-draining electronics, these devices will stagnate. Go in and you have no way out. If technology was sustaining there wouldn't have been a dot-com bust... just a shift. Much like free enterprise credit businesses compromised when banks took funding facilities away, the same occurred with free enterprise technology. All usurped by big entities that otherwise would have gone-bust. We are where we are now (global financial devastation) from a terrorist-style attack by established businesses stealing the innovations and ingenuity of enterprise for no other reason or purpose but survival. The world wants employment, not video enjoyment laced with Kool Aid.
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