Qualcomm Upside Looks Very Attractive - Barron's

Includes: NOK, QCOM
by: SA Eli Hoffmann

Shares of wireless-chip maker Qualcomm, up just 1.7% YTD, have badly lagged the Nasdaq's 10.1% rise as investors continue to fret the company's legal wranglings with Nokia and Broadcom, among others. Barron's Mark Veverka, together with a slew of analysts, say the Street may be overlooking Qualcomm's potential blockbuster dominance over chips for up-and-coming third-generation (3G) mobile phones, and is assuming a worse-than-worst-case scenario outcome of the company's pending arbitration. Qualcomm's CDMA technology is currently used in about 20% of the global wireless chip market; the other 80% of phones use GSM. But Barron's says Qualcomm's 3G W-CDMA (wide-CDMA) does a far better job of enabling third-generation products than does GSM, which should see it snaring a bigger piece of the 3G pie -- estimated at 800 million subscribers by 2011. "If I look at our product road map compared to everybody else's, there is nobody ahead of us on that road," CEO Paul Jacobs says. The outcome of Qualcomm's arbitration with Nokia over the latter's use of the former's chips will likely see Nokia paying Qualcomm between 2% and 5% of the wholesale cost of its handsets, yet Qualcomm's current numbers reflect none of that, as the company stopped booking Nokia revenues when their standing agreement expired. If a new agreement pegs the number at 4%, Lewis Asset Management's Bernard Diggins says Qualcomm shares ($38) are worth $80. "At the end of the day -- and unfortunately we don't know when that day is coming -- it will be good for Qualcomm investors," Diggins says.

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