Things are looking bright for Qualcomm (QCOM), the world’s largest manufacturer of cellphone chips, thanks largely to the explosion of smartphone sales. Chips actually aren’t the company’s most profitable product, though they provide more than half of revenue.
The most profitable product is wireless technology that Qualcomm creates and licenses. The company is a big innovator of code division multiple access (CDMA) technology, which is one of the two main wireless standards used to enable cellphone connectivity.
Qualcomm holds more than 10,000 patents related to CDMA, which means phones can’t connect to the CDMA network without paying a fee to Qualcomm. Its licensing arrangements with almost every handset maker give it 3 percent to 5 percent of the price of each phone sold, Morningstar calculates.
The company’s biggest competitors include Texas Instruments (TXN), Nvidia (NVDA), and Intel (INTC).
In its second fiscal quarter ended March 27, Qualcomm registered profit of $999 million, up 29 percent from $774 million a year earlier, topping analysts’ expectations. Revenue soared 46 percent to $3.88 billion, also exceeding forecasts.
The continuing surge in demand for smartphones powered the earnings strength. In February, Apple started selling its iPhone through Verizon Wireless, whose network relies on Qualcomm’s CDMA technology.
Buoyant global demand
The company saw strong demand almost everywhere around the globe — particularly China — and said investor fears that Japan’s natural disasters would put a damper on cellphone sales proved unfounded.
Qualcomm lifted its fiscal 2011 revenue estimate to a range of $14.1 billion to $14.7 billion, up from its prior forecast of $13.6 billion to $14.2 billion.
Analysts reacted enthusiastically to the earnings report. Barclays Capital analysts raised their share-price target for the stock to $64 from $62 previously. The shares recently traded at $57.10.
Analysts at Canaccord Genuity raised their share-price target to $70 from $67, and Goldman Sachs analysts reiterated their buy rating.
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