Updated Research Report on QUALCOMM

On Feb 19, we issued an updated research report on QUALCOMM Inc. (QCOM). The long-term fundamentals of the company remain fascinating given the steadily growing demand for 4G Long Term Evolution (LTE)-enabled mobile handsets in developed countries, rapid transition from 2G to 3G/4G in China and other emerging markets and increasing licensing revenues. However, decreasing growth rate of the high-end smartphones, intensifying competition in the low-end smartphone chipset segment and litigation issues in China are the near-term concerns.

Qualcomm has reported positive earnings surprises in three of the last four quarters, with an average surprise of negative 0.46%. The company reported mixed financial results for the first quarter of fiscal 2014. Earnings beat the Zacks Consensus Estimate but revenues lagged the same.

Qualcomm benefits from the significant growth of 3G wireless technologies and smartphones in the emerging markets, particularly in China. The next-generation super-fast 4G LTE technology has also boosted Qualcomm’s performance.

Moreover, the acquisition of Atheros Communications has transformed Qualcomm into an integrated chipset developer for the mobile computing market. In Jan 2014, the company acquired a portfolio of patents from Hewlett-Packard Company (HPQ). The portfolio comprises 1,400 granted and pending patent applications from the U.S. and about 1,000 granted and pending patent applications from other countries including China, England, Germany, Japan and South Korea.

The primary concern for the company is aggressive competition in the mobile phone chipset market, which may hurt the company’s profit in the future. Qualcomm is facing severe competitive threat from its closest rival, Intel Corp (INTC), which has been redesigning its chipsets for the mobile computing market. The ongoing global economic volatility may severely impact the telecommunications industry, which in turn may negatively affect the demand for Qualcomm developed chipsets.

Qualcomm currently has a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Another stock that is worth considering within this sector is ShoreTel, Inc. (SHOR) carrying a Zacks Rank #1 (Strong Buy).

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