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Smartphones Lift Qualcomm Chip Prices as Stock Heads to $59
Qualcomm ( QCOM ) recently announced its fiscal year Q3 2011 earnings in which it revised its revenue outlook higher for 2011 due to healthy smartphone demand and revenue gains from the Atheros acquisition. The company reported higher average selling prices for mobile devices based on its technology that surpasses most expectations. Qualcomm competes with Nvidia ( NVDA ), Broadcom (NASDAQ:BRCM), Marvell (NASDAQ:MRVL), Infineon (now acquired by Intel ( INTC )) and Texas Instruments ( TXN ) in the mobile phone and tablets chispet markets.
Based on the earnings results and revised outlook, we have updated our price estimate for Qualcomm stock from around $57 to $59 . Our price estimate stands about 5% above market price.
Smartphone Demand Drivers ASPs
Qualcomm holds patents in CDMA, WCDMA, OFDMA technology and is the leader in the baseband chipset market based on this technology. The company earns royalties for each device sold and given the booming growth of the smartphone market, average selling prices (ASPs) are improving.
Qualcomm acquired Atheros in January this year for a valuation of $3.2 billion, and in a recent note ( Atheros Acquisition Provides Immediate Upside for Qualcomm Stock ), we discussed how this acquisition will help Qualcomm supplement its existing chipset portfolio by including Atheros' Wi-fi, Bluetooth, Ethernet and GPS chipsets. By integrating its chipset portfolio with Atheros', Qualcomm will help sell its chips for higher prices.
Based on the revised outlook, we have increased the chipset average selling price for Qualcomm for 2011. However, we still believe that increasing competitive pressure will force Qualcomm to reduce its pricing in the medium to longer term time period.
To test the impact on its shares given changes in chip prices, you can modify the chart above.