Earnings Preview: Qualcomm

 | Jan 28, 2014 | 1:30 PM EST
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Qualcomm (QCOM) reports first quarter fiscal 2014 earnings on Wednesday after the close, Analysts expect the company to report earnings of $1.19 on $6.6 billion in revenue.

Last year was impressive. In fiscal 2013, Qualcomm delivered revenue of $25 billion, up 30% over the year before. Earnings rose 22%. The company shipped 719 million chipsets, up 21%. The global wireless market is gigantic. Total reported devices sales rose 23% to $231 billion. Gartner estimates 1.9 billion (yes, billion!) mobile phones will be shipped in 2014, up 5% over last year. Gartner anticipates the Android platform will surpass one billion users in 2014. By 2017, Gartner believes 75% of Android sales will come from emerging markets. In comparison, there could be 682 million iOS devices installed by the end of this year.

The shift towards 4G LTE has been great for Qualcomm. Back in the bad old days of 3G, Samsung accounted for 60% of dual core processor shipments. (Although most of that market share came from Samsung phones.) With the shift towards 4G smartphones, multi-core processors began to take market share. In fact, multi-core "systems on a chip" (SoC) went from 20% of the market to 60% in less than two years. Multi-core chipsets are ruling the roost right now.

Qualcomm took charge with its Snapdragon line. Stuffed into every Snapdragon there's a 4G LTE modem, complete Wi-Fi, USB, and Bluetooth connectivity and an FM radio. The Snapdragon can support a 21-megapixel camera, 1080p high definition video and a 2048x1536 external display. The Snapdragon was 45% faster and used less power than its predecessor. The Snapdragon, with an integrated 4G baseband, gave competitors fits.

Qualcomm could face its toughest challenge this year when Intel (INTC) releases its "Cherry Tail" architecture. Cherry Tail and Moorefield chipsets are manufactured on a 14-nanometer process, which should dramatically lower power consumption and provide a speed boost. Competitors say Intel's chips are only good for tablets and can't handle the demanding smartphone environment. But that doesn't mean Qualcomm is sitting still. The company is expected to ship the Snapdragon 805 in the first half of 2014.

Analysts expect as many as nine companies could vie for Qualcomm's throne in 2014. Besides NVIDIA (NVDA), Ericsson (ERIC), Broadcom (BRCM) and Marvel (MRVL) have all announced offerings and strategies. Yikes!

The weakness we saw in Apple's (AAPL) quarterly report on Monday night is concerning. While Apple designs its own advanced processor, called the A7, it does buy other chipsets from Qualcomm. Slower demand from Apple could dent Qualcomm's future quarters. Demand seems to be easing at Samsung too. Samsung officials said smartphone shipments are expected to increase just 4 to 6 percent for the first quarter of 2014. That forecast was weaker than expected.

Headed into the quarterly report, I would be cautious. There seems to be a lot of headline risk right now. I would wait before dialing up more Qualcomm shares.

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