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Of all the companies that have benefited from the exponential mobile devices growth, one stands out: Qualcomm (NASDAQ:QCOM). But will this trend continue?
We will get the answer on Wednesday when the company reports Q4 earnings. Estimates range between 0.79 and 0.87 cents. What analysts pay close attention, however, is whether Qualcomm solved a problem it has encountered in the last quarter:
The inability to keep up with strong demand for its customers for its newest line of products, especially from Apple (NASDAQ:AAPL).
Qualcomm’s problem is unusual given the sluggish world market environment, where most high technology companies—e.g., Intel (NASDAQ:INTC) and Hewlett-Packard (NASDAQ:HPQ)--have the opposite problem: too little demand for its products!
While the inability to keep up with demand has hurt the Qualcomm’s short-term performance, it is expected to more than make it up in the long-term, as it will eventually translate into higher sales and profit margins. That’s can explain why the stock soared after the last earning report, though the company missed analysts estimates on both the top and bottom lines.
A pioneer of CDMA technology, Qualcomm enjoys the “first mover” advantage in wireless communications, which maintains with heavy investments in R&D; and with the recent acquisition of Atheros Communications (ATHR), Qualcomm has strengthened its leadership in the industry.
Reflecting strong fundamentals, the company has experienced robust sales and profit growth, beating analysts’ estimates quarter after quarter.
Qualcomm trades at a Forward PE (fye Sep 2013) of 14.57. This means that the stock is valued very close to those of its competitors Broadcom (NASDAQ:BRCM), and Texas Instruments (NASDAQ:TXN). Qualcomm is expected to maintain leadership in wireless communications, which is still an emerging industry–MobiThinking estimates that there were almost 1.2 billion of mobile broadband users in 2011, up from 870 millions in 2010.
Wireless Intelligence estimates that the number of 3G users will reach 2.8 billion by 2014. This means that the company is expected to be the main beneficiary of the wireless communication upgrade cycle. The GSM Association expects telecom providers to spend $100 billion by 2015 -in High-Speed Packet Access (HSPA), 3G, and 4G.
Also read:
How to Invest in Apple After a Mixed Earnings Report
Disclosure: Long on QCOM;long and short on AAPL with options
