Qualcomm: The Best Play on Accelerating Shift to 4G Smartphones

This company enjoys a lock on proprietary technology for increasingly popular mobile devices, providing investors with growth amid market uncertainty.

Tepid economic growth in the US and recession in debt-plagued Europe have hurt semiconductor demand, wounding technology giants such as Intel (NASDAQ:INTC). However, one company has emerged as a consistent winner because it’s wired like no other into the global passion for mobile devices: Qualcomm (NASDAQ:QCOM).

This month, the company has been on a roll. On November 15, Qualcomm Chief Executive Paul Jacobs stated in his presentation at the company’s annual investor day that management expects a compound annual growth rate of at least 10% for its revenue and earnings per share (EPS) over the next five years.

This sanguine assessment followed a stellar earnings report on November 7, when Qualcomm reported a 20% surge in earnings for its fourth quarter of fiscal 2012, based on robust sales of chipsets used in wireless devices, along with gains in its licensing business.

For the quarter ending September 30, Qualcomm reported earnings of $1.27 billion, or $0.73 in EPS, compared to earnings of $1.06 billion, or $0.62 in EPS, for the same year-ago period. Revenue rose 18% to $4.87 billion. Analysts were expecting EPS of $0.82 on revenue of $4.7 billion.

For the full fiscal year, revenue was $19.1 billion, up 28% year over year, and earnings were $6.1 billion, up 43%. EPS was $3.51, up 39%.

Qualcomm’s fourth-quarter performance surpassed analysts’ expectations, at a time when many technology companies have been feeling the ill effects of a slump in PC sales and curtailment of corporate spending.

Qualcomm is the seventh-largest technology company in the US, boasting a market capitalization of more than $100 billion and $25.6 billion in cash on its balance sheet. The company is comprised of two segments: Qualcomm CDMA Technologies (QCT) and Qualcomm Technology Licensing (QTL).

QCT designs and sells chipsets that are integral to a host of popular electronic devices, including laptops, tablets, and smartphones. The QTL division owns a large portfolio of patents for mobile telecommunications. The company’s lock on this valuable intellectual property means that every time a manufacturer sells a handset that allows for high-speed data connections, Qualcomm reaps a royalty on the sale—regardless of the brand of device.

Smartest Play on Smartphones

Qualcomm is the best play on the accelerating migration of consumers from third-generation (3G) to fourth-generation (4G) smartphones.