Qualcomm is winning the Apple-Samsung war

11/08/2012 6:36 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Still debating whether Apple (APPL) or Samsung will come out on top in the smartphone and tablet wars?

I think Qualcomm’s (QCOM) earnings for the fourth quarter of its fiscal year, announced after the close on November 7, say that if you sell chips to both companies, the eventual winner in that war doesn’t much matter. (Qualcomm is a member of my Jubak's Picks portfolio http://jubakpicks.com/

Qualcomm reported earnings of 89 cents a share (after one-time items.) That beat the Wall Street consensus estimate by 7 cents a share. Revenue climbed by 18.3% year-over-year to $4.87 billion versus Wall Street projections of $4.66 billion.

And then, adding icing to a very tasty cake, the company raised guidance for the first quarter of fiscal 2013 to earnings of $1.08 to $1.16 a share (vs. the consensus of $1.01.) Revenue for the quarter, the company projected, will be $5.6 billion to $6.1 billion (vs. the consensus of $5.32 billion.) For the full year, Qualcomm said, earnings will be $4.12 to $4.32 a share and revenue $23 billion to $24 billion (vs. the consensus of $4.14 in earnings per share and revenue of $21.73 billion.)

One of the reasons for the higher guidance is the company’s belief that supply constraints for 28-nanometer chips from Taiwan Semiconductor Manufacturing (TSM) will ease enabling the company to catch up with pent up demand. Earlier in 2012 Qualcomm had reported that shortages were forcing some customers to postpone introduction of new smartphone models.

Another reason is that the company’s continued dominance in baseband chips for the next generation LTE-enabled phones will drive Qualcomm’s average selling price higher. That trend looks likely to run for a while as more phone makers add more phones (and more expensive phones) with the newest technologies to their lineups.

One fear that hung over the shares before the report turned out to be groundless. Analysts had worried that the company’s revenue from licensing its patents to phone makers would fall off or show signs of slowing growth. Revenue for technology licenses grew by 15.7% in fiscal 2012 and is forecast by Credit Suisse to grow by 19.6% in fiscal 2013. Licensing revenue is calculated as a percentage of the average selling price of phones—as prices go up so does Qualcomm’s licensing revenue.

Analysts project that smartphone sales will grow by 44% this year and 35% in 2013. That should keep Qualcomm’s growth humming. The company also has another arrow in its growth quiver—its Snapdragon chips are going into some computers running Microsoft’s new Windows 8 operating system.

After these results I calculate a new 12-month target price of $77 a share. That’s a 27% increase from the $60.67 closing price on November 8.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Qualcomm as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

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