Qualcomm: 15% Upside Driven by CDMA Penetration, Pricing

Jul.16.10 | About: Qualcomm Inc. (QCOM)

Hundreds of Trefis members have created forecasts for two key drivers of Qualcomm’s (NASDAQ:QCOM) stock over the last week: (1) Penetration of CDMA in Mobile Phones Sold, (2) CDMA Mobile Phones Pricing. Their forecasts suggest that Penetration of CDMA in Mobile Phones Sold and CDMA Mobile Phones Pricing will trend better than the Trefis forecast. These projections suggest a combined upside of nearly 15% for Qualcomm’s stock. The slower than expected decline in CDMA Mobile Phones Pricing also suggests upside for the stocks of mobile phone makers like Motorola (MOT), RIM (RIMM) and Apple (NASDAQ:AAPL).

Qualcomm’s Mobile Phone Royalties constitute 29% of the $42 Trefis price estimate for Qualcomm’s stock. In comparison, Mobile Phone Chipsets account for 43% and the company’s cash balance (net of debt) accounts for 25% of the Trefis estimate for Qualcomm’s stock.

Considering the importance of the Mobile Phone Royalties business, Qualcomm ’s stock is quite sensitive to both 1) Penetration of CDMA in Mobile Phones Sold and 2) CDMA Mobile Phones Pricing. Below are the charts showing recent estimates created by Trefis members for the two drivers.

1. Penetration of CDMA in Mobile Phones Sold

The average of forecasts for Penetration of CDMA in Mobile Phones Sold created by Trefis members indicated a projected increase from 59% in 2010 to 72% by the end of the Trefis forecast period, compared to the baseline Trefis estimate of an increase from 45% in 2010 to 65% by the end of the Trefis forecast period. The member estimates imply an upside of 8-9% to the Trefis price estimate for Qualcomm’s stock. In the past, Penetration of CDMA in Mobile Phones Sold has increased from 22% in 2005 to 40% in 2009.

You can drag the Penetration of CDMA in Mobile Phones Sold forecast trend-line above to express your own view, and see the sensitivity of Qualcomm’s stock to Penetration of CDMA in Mobile Phones Sold .

2. CDMA Mobile Phones Pricing

The average of forecasts for CDMA Mobile Phones Pricing created by Trefis members indicated a projected drop from about $190 in 2010 to about $174 by the end of the Trefis forecast period, compared to the baseline Trefis estimate of a decrease from $182 in 2010 to $143 by the end of the Trefis forecast period. The member estimates imply an upside of 5-6% to the Trefis price estimate for Qualcomm’s stock. In the past, CDMA Mobile Phones Pricing has dropped from nearly $215 in 2005 to about $196 in 2009.

You can drag the CDMA Mobile Phones Pricing forecast trend-line above to express your own view, and see the sensitivity of Qualcomm’s stock to CDMA Mobile Phones Pricing.

Disclosure: No positions