What's good for the iPhone 5 and other smartphones using 3G
and 4G technology is good forQualcomm (
), the San Diego-based chip powerhouse for the cellphone
The company's dominant position in new-generation cellphone
technology gives it a wide lead over other chip rivals, at least
for the next year, says Canaccord Genuity analyst Michael
"Basically, Qualcomm has limited or no competition," he
The iPhone 5, launched in late September, isApple 's (
) first smartphone using new 4G LTE technology, which wireless
phone companies are starting to adopt for next-generation
Qualcomm supplies Apple with the baseband processor to help in
the regular blocking and tackling functions of a call.
These chips are lower priced than Qualcomm's integrated
Snapdragon processors, which combine multiple functions in one
But the average selling price is 70% to 80% higher than for
iPhone 5's predecessor, the iPhone 4S, Walkley says. "From our
checks, we've seen unbelievable demand," he said of the iPhone
He attributes strong demand to the faster, next-generation LTE
technology and the bigger screen.
"With LTE, it has much faster downloads and uploads and
activity speeds," he said.
Walkley, who covers both Apple and Qualcomm, thinks Apple will
sell 50 million iPhones in the three months ending in
That would surpass the 37 million iPhones sold during the same
period last year, when the iPhone 4S was in launch mode, he
Besides chip sales to the handset market, Qualcomm gets a cut
on 3G and 4G handset sales, whether it has a chip in the phone or
not. That's because of its work in developing the technology.
Licensing fees accounted for 36% of Qualcomm's revenue in the
third fiscal quarter ended in June, but about two-thirds of
Qualcomm will be selling chips into plenty of other high-end
and low-end 3G and 4G handsets, including Android smartphones
fromMotorola (MOT), South Korea's electronics and appliance firm
LG and HTC, the Taiwanese manufacturer of smartphones and
HTC is a big player in China's low-priced, unbranded "white
Analysts also highlight Qualcomm's content sold into many, but
not all, of the hot new Samsung Galaxy S3 smartphones.
Qualcomm is growing sales into 3G handsets in emerging
markets, such as China as the market transitions from 2G to 3G
China's 800-million 2G handset market is slowly moving to 3G.
That's good for Qualcomm, since it doesn't get licensing revenue
from 2G phones.
"Right now, the wireless market is bifurcated with the high
end and low end doing well," said Mike Burton, analyst for Brean
Murray Carret. He points to Apple and Samsung winning on the high
end with their lineups "and the rest."
Sterne, Agee & Leach analyst Vjay Rakesh says the overall
smartphone market is growing 25% to 30% annually.
"Qualcomm is the supplier to the guys that are really growing,
which are Apple, Samsung and China," he said. "And there's a
whole group of other OEMs (original equipment manufacturers)
moving to 4G that will be attractive opportunities for Qualcomm.
4G is in the beginning stages."
Qualcomm got a leg up on rivals because it started investing
heavily in next-generation technology in 2007, Walkley says.
But others will eventually narrow Qualcomm's lead, analysts
Qualcomm President Steven Mollenkopf told analysts in the Q3
conference call that while many companies are still
commercializing their first LTE products, "we have already
announced our third-generation LTE chip sets."
He said the company will continue investing to maintain its
In the last quarter, Qualcomm spent $832 million on research
and development, or 18% of revenue.
Chip rivalsBroadcom (
) and MediaTek "are chasing the 3G market" but Qualcomm leads in
3G and 4G technology, Rakesh says.
Qualcomm's revenue in Q3 rose 28% over the year earlier to
$4.63 billion but was down 6% from Q2. Earnings year-over-year
rose 16% to 85 cents a share.
Supply constraints in 28-nanometer chip sets, which include
high-end Snapdragon processors, have been easing as four
foundries ramp production. Management expects sufficient-enough
supply to enable a "strong December quarter."
The company's Q4 guidance calls for revenue of $4.45 billion
to $4.85 billion vs. $4.12 billion last year.
Analysts polled by Thomson Reuters see Q4 profit rising 3%
over last year to 82 cents, but see full-year earnings up 14% to
Qualcomm will report Q4 and full-year results Nov. 7.
"Q3 and Q4 are generally the best time of the year for handset
sales," Burton said.
Investors will be closely watching management's guidance for
fiscal 2013. "This is always the big quarter because the focus is
on next year," Walkley said.
Besides handsets, there's more growth seen ahead for Qualcomm
in tablets, especially asMicrosoft (
) launches its new Windows 8 operating system starting Oct. 25.
Qualcomm has been named a qualified supplier on Windows 8.
"Qualcomm is very well positioned in the handset market, and
the tablet market will definitely be an opportunity with Windows
8," Rakesh said.