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It is hardly news to make the observation that the use of smart phones is proliferating throughout the world. Rather than trying to pick which gadget manufacturer may introduce the next blockbuster handset using any of the several mobile operating systems, it may be wiser to look at the manufacturers of the chipsets used by the handset manufacturers. Qualcomm (NASDAQ:QCOM) provides guidance suggesting 2012 revenue growth of 20%-27% and GAAP EPS in the $2.80-$3.00 range.

Qualcomm is a leading manufacturer of semiconductors used in smart phones, tablets and other mobile devices. QCOM chipsets is on virtually every major platform including Apple (NASDAQ:AAPL), Nokia (NYSE:NOK) and Research in Motion’s (RIMM) Blackberry and numerous Android units. It would be a mistake to define Qualcomm exclusively by its important position in the smart phone market.

The company operates in four segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); Qualcomm Wireless & Internet (QWI), and Qualcomm Strategic Initiatives (QSI). The company generates revenues by selling products which include:

  • Various types of chipsets used in mobile devices and wireless networks;
  • Chips used in wired devices, most notably, broadband gateway equipment, PC’s, televisions and Blu-ray players;
  • Software for content enablement across platforms;
  • Equipment used by companies in the transportation industry and the government to wirelessly connect with their assets and workforce;
  • Software that enables mobile commerce services; and
  • Software and hardware development services.

Qualcomm’s integrated circuits are based on CDMA, OFDMA and other technologies for use in voice and data communications, networking, application processing, multimedia functions and global positioning systems. These IC products are sold to other manufacturers for use QCOM products in wireless devices, particularly smart phones, tablets, laptops, data modules, handheld wireless computers and gaming devices, routers and other infrastructure equipment.

Qualcomm also has products directed towards the wireless medical device market used for monitoring patients. The market for remote monitoring of patient’s was $3.6 billion in 2007 and it is expected to reach $5.1 billion by 2013. The trend indicates that at least 160 million Americans would be under monitor by 2020 and treated remotely for at least single chronic condition with 77% of Americans aged 65 and above having one or more chronic conditions.

This often overlooked segment of Qualcomm’s business offers reliable, long term benefits. Changes in the healthcare environment and the government’s initiative in promoting wireless medical applications clearly offer a long term opportunities. This segment may not have an immediate effect on the company’s performance, but it would allow the company to expand its product base in wireless medical devices for long term growth.

The company described its expectations in its most recent 10K:

“The deployment of 3G networks enables increased voice capacity and higher data rates than prior generation networks, thereby supporting more minutes of use and a wide range of mobile broadband data applications for handsets, 3G connected computing devices and other consumer electronics. Many wireless operators have or are planning to complement their existing 3G networks by deploying OFDMA-based technology, often called 4G, in new spectrum to gain additional capacity for data services. As a result, we expect continued growth in the coming years in consumer demand for 3G and 3G/4G multimode products and services around the world. In addition, we expect an increasing number of devices, such as computers, consumer electronics and networking equipment, to require multiple communications technologies to support a variety of connected applications.

As we look forward to the next several months, the following items are likely to have an impact on our business:

The deployment of 3G networks enables increased voice capacity and higher data rates than prior generation networks, thereby supporting more minutes of use and a wide range of mobile broadband data applications for handsets, 3G connected computing devices and other consumer electronics. Many wireless operators have or are planning to complement their existing 3G networks by deploying OFDMA-based technology, often called 4G, in new spectrum to gain additional capacity for data services. As a result, we expect continued growth in the coming years in consumer demand for 3G and 3G/4G multimode products and services around the world. In addition, we expect an increasing number of devices, such as computers, consumer electronics and networking equipment, to require multiple communications technologies to support a variety of connected applications.

As we look forward to the next several months, the following items are likely to have an impact on our business:

The worldwide transition from 2G to 3G CDMA-based networks is expected to continue, including the further expansion of 3G in China, India and other emerging regions.

  • We expect consumer demand for advanced 3G-based and 3G/4G multimode devices, including smart phones and data-centric devices, such as tablets and e-readers, to continue at a strong pace. We also expect growth in lower-end 3G devices as 3G expands in emerging regions.

  • We expect that CDMA-based device prices will continue to vary broadly due to the increased penetration of smart phones combined with active competition throughout the world at all price tiers. This, along with varying rates of economic growth by region and stronger than average growth in emerging regions, is expected to continue to impact the average and range of selling prices of CDMA-based devices.

  • We continue to invest significant resources toward the development of technologies and products for voice and data communications, primarily in the wireless industry, including advancements to 3G CDMA and 4G LTE networks, wireless baseband chips, our converged computing/communications (Snapdragon) chips, multimedia products, software and services, as well as our IMOD display technology.

  • We have agreed to sell substantially all of our 700 MHz spectrum for $1.9 billion, subject to the satisfaction of customary closing conditions, including approval from the U.S. Federal Communications Commission. If the closing conditions are met, we expect to recognize a gain in discontinued operations of $1.2 billion.”


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Qualcomm’s fiscal year ended in September 2011. For FY11, revenues grew 36% to $14,957 million from $10,982 million in FY10. For the same period, net income grew to $4,260 million, or 31%, over FY10 net income of $3,247 million. The company provides guidance on 2012 revenues. They expect revenue to grow to $18,000-$19,000 million or 20%-27%, on the year. They also project GAAP EPS in the $2.80-$3.00 range.

The company pays a dividend that currently yields about 1.5%. Dividends are growing about 14% per year; good for a so-called growth stock. The company is also buying back shares. The dividend is well covered by a payout ratio of 24.6%. Qualcomm has no long term debt and carries $11,652 million of cash and short term investments on its books. The company is consistently profitable and profitability, as measured by ROA, ROE and ROIC are above five year averages.

Analysts rate Qualcomm a “buy.” Price targets range from $50 to $75, with a median target price of $67 and an average of $66.88. We estimate price targets based on our expectations for invested capital and book value. Based on our analysis of invested capital, our target price is $60.22; based on book value, $65.82.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Qualcomm Runs With The Bulls