Qualcomm Inc.(QCOM), one of the leading manufacturers of smartphone chipsets, has entered into a long-term contract with Semp Toshiba to offer royalty-bearing patent license to develop, manufacture and sell 3G WCDMA and TD-SCDMA, and 4G OFDMA (e.g., LTE) subscriber units. Semp Toshiba is one of the leading electronics device manufacturers in Brazil.
Higher adoption of smartphones and tablets coupled with increased rollouts of 3G/4G networks have led to increased demand for LTE capable processors. So in order to tap such existing opportunity, Qualcomm is continuously accelerating its chipset manufacturing process.
Moreover, such contract wins from emerging countries like Brazil (world's fifth largest populated country) will create huge growth opportunity for the company while moving ahead. Alongside, the country has already auctioned 4G licenses (sold 54 airwaves out of 269 airwaves) and also has plans as per Anatel (Brazil’s telecommunications regulator) to launch its 4G LTE services across the nation by the end of next year.
We believe that the company’s record-high earnings, strong balance sheet and huge demand for S4 chipsets will act as positive catalysts for the stock going forward. Moreover, the growing popularity of smartphones and tablets coupled with increased deployment of 3G/4G networks and the recent launch of 4G LTE-based iPhone 5 by Apple Inc. (AAPL) will further drive the stock upward.
However, stiff competition from formidable rivals like Broadcom Corporation (BRCM) and NVIDIA Corporation (NVDA) coupled with supply constrain arising out of huge demand for Snapdragon S4 processors mainly used in 4G LTE-based smartphones may act as headwinds for the company going forward.
We maintain our long-term Neutral recommendation for Qualcomm Inc. Currently, it has a Zacks #2 Rank, implying a short-term Buy rating on the stock.
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