Why Qualcomm is the Future of Mobile Devices

Qualcomm (NASDAQ: QCOM) reported blow out earnings last night, which confirms one thing: mobile device usage is soaring, and soaring bigger than some could have ever imagined.

The San Diego-based semiconductor company reported fourth quarter earnings of 80 cents per share on $4.12 billion in revenues. Wall Street analysts were expecting 78 cents per share on $4 billion in revenues.

In addition, the company also raised first quarter 2012 and full year guidance. It said it now sees 86-92 cents per share on $4.35-$4.75 billion in revenues. Wall Street is looking for first quarter earnings of 85 cents per share on $4.25 billion in revenues. It also expects full year earnings of $3.42-$3.62 per share on $18-$19 billion in revenues. Wall Street is looking for earnings of $3.40 per share on $17.32 billion in revenues.

The earnings beat and guidance raise for the first quarter and full year is the reason shares are soaring this morning, up around 9% at of the time of this article.

"I am very pleased with our performance this year as we delivered record revenues, earnings and MSM chipset shipments, driven by the popularity of smartphones, continued adoption of 3G technologies, particularly in emerging regions, and our industry-leading patent portfolio," said Dr. Paul E. Jacobs, chairman and CEO of Qualcomm, in a company statement.

"The breadth and depth of our chipset roadmap, extensive licensing program and diverse set of global partnerships position us well for strong revenue and earnings growth in fiscal 2012. We are excited about the upcoming commercial launch of our groundbreaking Snapdragon multimode LTE solution and continue to invest in and execute on our strategic priorities to drive profitable growth," Jacobs continued.

Morgan Stanley and Citigroup were very bullish on the earnings release, and raised price targets as a result.

In a report, Morgan Stanley stated, "QCOM beat and gave bullish guidance for FQ1 with chipments of 146-154M, up 15-21% q/q, on the back of the iPhone 4S launch. It's all about the chips as Snapdragon shipments to Nokia and the intro of LTE smartphones based on the 8960 could provide upside to QCT revenue and margin in 2H'12."

Qualcomm, like Broadcom (NASDAQ: BRCM) and a slew of other chips, use ARM-based (NASDAQ: ARMH) technology for their chips, which use much less power than Intel (NASDAQ: INTC) chips. Mobile devices are thriving because of this.

Jacobs was on CNBC this morning, and he said that the company's mobile chip, named Snapdragon, is in 300 devices already, including the Apple (NASDAQ: AAPL) iPhone. There are another 350 devices in development, and Jacobs said that he expects to sell even more Snapdragon chips next year when the new 28 nanometer chips are available for phones and tablets.

Jacobs said that because of this, the "wind is at the company's backs." He believes that people will have multiple devices in the future, including a smart phone, a tablet, and a smart car, which we are starting to see from the likes of Ford (NYSE: F) and General Motors (NYSE: GM).

Shares are trading at 15 times expected 2012 earnings, and sport a 1.7% dividend yield as well. Qualcomm, led by Jacobs, has been able to take market share in smart phones, and with the introduction of Windows 8 by Microsoft (NASDAQ: MSFT) next year, the company said it expects to win market share in laptops. Windows 8 will run on ARM-based chips, which could lead to significantly more powerful laptops that use less power.

With Qualcomm continuing to power smart phones, tablets, and potentially laptops in the future, this is a semiconductor company that shareholders may want to think about taking a look at.

ACTION ITEMS:

Bullish:
Traders who believe that smart phone and tablet growth will continue might want to consider the following trades:

• Qualcomm, ARM Holdings, Broadcom, and even Texas Instruments (NYSE: TXN) will continue to see strong revenues.

• This is also beneficial for Apple, which uses all of these chips in the company's iPhones and iPads.

Bearish:
Traders who believe that smart device growth will slow may consider alternate positions:

• ARM is the most expensive on an earnings multiple basis. It could fall sharply if there is a lack of demand for these devices. The other chip companies have dividends, while ARM does not. Traders may want to short this.
  
  

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