Qualcomm's Pain May Be Apple's Gain
The San Diego-based wireless chip maker said its product supply can't meet up with demand, and that very well could largely be a function of Apple's(AAPL) big needs.
After reporting its second-quarter earnings, Qualcomm said it's seeing supply constraints for its 28 nanometer (NM) chips. It's working on getting supply up to speed, and that will cause operating expenses to be slightly higher in the third quarter.
The company, which supplies semiconductors to handset makers including Apple and Samsung, posted earnings, excluding items, of $1.01 a share on $4.94 billion in revenue. Analysts polled by Thomson Reuters had expected earnings of 96 cents a share on $4.84 billion in revenue.
Apple is transitioning towards the 28 nm chip, said Citigroup analyst Glen Yeung in commentary issued Thursday after the second-quarter report, and this is the reason for the supply shortage of 28 nm, rather than 45 nm.
"We attribute this predominantly to Apple who is reducing demand for 45nm baseband (MDM6610 in iPhone4S) in favor of 28nm baseband (MDM9615 in iPhone5)," Yeung said in his note. He expects a September/October launch of the iPhone 5 . Yeun reiterated a buy rating on Qualcomm shares and raised his price target to $74 from $73.
Qualcomm CEO Dr. Paul Jacobs said he is excited to see the continued growth in 3G and 4G/LTE handsets, as well as new mobile computing devices.
Qualcomm has been a major beneficiary in the adoption of 4G, said BMO analyst Kevin Manning. The analyst said he expects the average selling price (ASP) "to improve for both devices and chipsets as 4G grows and Qualcomm gains more content." He has an outperform rating on the stock with a $77 price target. Qualcomm raised its own assumption on ASP from $210 per unit to $212 for 2012.
Qualcomm noted that it expects one-third of chip shipments to for LTE smartphones, and all expectations are that Apple's iPhone 5 will be LTE-capable, especially now that the new iPad has LTE capabilities.
Raymond James analyst Tavis McCourt said he expects exceptional second-half strength for Qualcomm, as supply increases.
"We continue to view Qualcomm as modestly undervalued with significant operational momentum that should continue through this year and next with iPhone/smartphone strength and emerging WindowsRT device opportunities providing exceptional growth catalysts," McCourt wrote in his research note. He has an outperform rating on the stock with a $73 price target.
The company said there is going to be "a lot of focus" on new products coming online in the September quarter, and particularly in the December quarter." This coincides with the rumors of a September or October iPhone release.