Stock Brawl: Qualcomm

Qualcomm Sign
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Qualcomm Sign

According to the consulting firm PRTM 77% of the 57 phones that run Google’s Android have Qualcomm chips in them.

Qualcomm is the stock up for debate in today’s Stock Brawl on "Closing Bell” at 3:40PM ET.

With a market cap of $77 billion, Qualcomm is the world's largest semiconductor producer and wireless chipset and software technology.

Its products help power the majority of 3G mobile, computer, and consumer electronics devices we use today.

In other words - It’s a good barometer of the tech sector.

Qualcomm chipsets are sold to companies such as Motorola, LG, and Samsung. The company is also involved in creating one of the key components of the presumed Verizon iPhone, which can look to be a great opportunity for investors. It’s no wonder why our Bull, Craig Berger, says the stock is a buy. Our Bear, Srini Pajjuri, thinks otherwise and wants to sell Qualcomm.

Shares of Qualcomm enjoyed a nice gain after beating expectations for fiscal Q4 and upped its forecasts for the current quarter.

Making Their Case: The Bull

Craig Berger, Senior Semiconductor Analyst, FBR Capital Markets

Berger expects Qualcomm’s calendar 3Q results and calendar 4Q guidance to be robust given the following:

  • The overall strength of the smartphone market
  • Android-based smartphones' performance in particular and Qualcomm's high baseband market share of android-based smartphones
  • Recent channel checks that Qualcomm is likely beginning to ship product into upcoming iPhones, an incremental share driver
  • Other anecdotal channel checks from front-end and back-end production suppliers.

Since Qualcomm will likely supply into CDMA iPhones in 1Q11, Berger estimates that 15 million units of CDMA iPhones would contribute $100M–$150M in Qualcomm’s annual revenues and $0.03 to $0.05 in EPS.

Making Their Case: The Bear

Srini Pajjuri, Analyst, Credit Agricole Securities

Qualcomm's chipset business is subject to share loss risk and may also face competitive pricing pressure. The biggest share gain opportunity lies in Nokia and Apple, which is risky.

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Pajjuri explained, “the decision by Nokia to sell its modem business to Renesas makes us believe that QCOM’s opportunity at Nokia is even smaller than before.”

Although smartphone growth remains strong, Pajjuri sees limited upside to the royalty business and temporary chipset momentum. He continues to view the CDMA iPhone as a “zero-sum-game and believe that the lack of a discrete CPU limits QCOM’s Tablet opportunity.”

Cystal Lau contributed to this article.


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