Qualcomm Investors Shouldn't Fret Over Apple Worries

| About: Qualcomm Inc. (QCOM)

Lost in the shuffle of worries surrounding Apple's (NASDAQ:AAPL) rumored cutting of vendor orders at Qualcomm (NASDAQ:QCOM) is Qualcomm's market leading position among Apple competitors.

Sure, Apple's iPhone sales remain an important piece of Qualcomm's puzzle. But, Apple devices are far from the only one's driving Qualcomm's fortunes. And, even if they were, it's not like Apple isn't selling iPhone 5's or iPads anymore.

And, those Apple holiday sales will likely help Qualcomm post strong quarterly results thanks to the company supplying the PM8018 Power Management IC, the MDM9615 LTE modem and the RTR8600 multimode receiver for those devices.

Looking beyond Apple, Qualcomm's Snapdragon processors power leading devices from Samsung (OTC:SSNLF), such as U.S. sales of the Galaxy 3, the Nokia (NYSE:NOK) Lumia 920 and Sony's (NYSE:SNE) Xperia Ion and Play. It's also powering Google's (NASDAQ:GOOG) successful Nexus 4.

The relationship with Samsung is especially important. Exiting Q3, Samsung was the leading global seller of phones, moving 55.5 million units and owning 32% of the market - up from 22.7% last year. A lot of Samsung's devices include Qualcomm products, such as their baseband chips, which allow the phones to link up to provider networks.

Global sales of mobile devices are much less concentrated than here in the States.

The global trend toward migration to 3G in key markets like China, where Apple is more a niche play, has been a key driver of global smartphone sales. Sales of key products from makers like Sony, Nokia and Samsung in China helped lift Qualcomm chip revenue 37% in FY12 to $12.1 billion.

In the company's baseband business, revenue per mobile station modem increased 9% sequentially on higher demand for 3G LTE capable devices. Operating margins for these modems came in at 16% last quarter and could further benefit given the company's guiding toward faster growth in FY13.

And, while chip sales across the industry make Qualcomm a bit agnostic to which OEM wins the market share battle, chips aren't the only source of revenue and profit growth at the company.

Last quarter, license revenue tied to its network patent portfolio climbed 16% year-over-year. For the full FY12, license sales were up 17% to $6.3 billion. This is far from chump change. Consider this point: Qualcomm's license revenue is more than six times bigger than Arm Holdings (NASDAQ:ARMH) total trailing 12 month sales.

This momentum is expected to continue for Qualcomm in FY2013.

IDC reported Q3 smart device shipments reached a record 303.6 million devices. And, the company expects holiday sales will lift Q4 to a record 362 million units. That's nearly 20% sequential growth and nearly 27% year-over-year growth.

As a result, Qualcomm expects sales will clock in at $23-24 billion in FY13, generating EPS of $4.12-4.32. This works out to 23% top line and 14% bottom line growth.

The company also has the potential to win additional business previously held by Texas Instruments (NYSE:TXN). Texas decided to abandon future mobile device development for its OMAP processors this past fall. The decision means millions of units of Kindle and Nook will be up for design wins next year.

But, those positives seem to be lost in valuing Qualcomm's shares. They've dropped 11% from 52 week highs, including an 8% drop last week.

At these prices and analyst average estimates of $4.76 per share, investors are only paying 12.8x forward earnings, which is just about its 5 year PE low.

If we take the trailing PE of 16 and extrapolate it to 2014 analyst projections of $4.76 per share, we get a crude target of $76, up 24% from current prices. So, given the overall market demand for mobile devices have tailwinds into next year, shareholders may find this the perfect time to pick up shares for 2013.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ARMH over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.