We have upgraded our recommendation on Qualcomm Inc. (QCOM) to Outperform.
Recently, it reported a record high result for the first quarter of fiscal 2012. Net income was up 20% year over year and 33% sequentially, indicating Qualcomm’s operating efficiency.
Management is quite confident that it will be able to maintain its current pace of top and bottom line growth for at least the next five years. There are primarily four reasons for this positive outlook: (1) gradual introduction of 4G LTE enabled mobile handsets in the U.S., Japan, and South Korea; (2) massive growth of 3G smartphones in the emerging markets, particularly in China, where the company has a strong foothold; (3) Qualcomm’s growing association with Apple Inc. (AAPL) for its iPhones and iPADs; and (4) a diversified product portfolio.
Qualcomm has firmly established its leadership position in the high-end smartphone segment. Several analysts have said that Qualcomm captured market share from rivals STMicroelectronics N.V (STM) and Intel Corp. (INTC) in the previous quarter. Intel’s Infineon chipset was a major supplier of the iPhone. However, it now appears that Qualcomm’s Snapdragon platform has taken the center stage. Apple’s upcoming iPhone 5 and iPAD 3 may become potential growth drivers for the company in near future.
Qualcomm received a shot in the arm from the upcoming Windows 8 operating system of Microsoft Corp. (MSFT). The two entities are collaborating to develop chipsets from Snapdragon platform for notebook and tablets that will use the Windows 8 operating system. In addition, Qualcomm’s Gobi mobile Internet connectivity solutions will provide 3G/4G LTE connectivity to those devices that will run on Windows 8 software. Snapdragon also supports the Windows Phone 7 operating system. Qualcomm is the sole chipset developer for both Windows smartphones and Windows notebooks.
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