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Qualcomm Looks Set For Strong Growth

Tickers in this article: QCOM CRUS MSFT AAPL NOK SWKS

NEW YORK ( TheStreet) - Qualcomm(QCOM) reports its fourth-quarter results after market close with analysts eyeing robust future growth from the key Apple(AAPL) partner.

"We believe Qualcomm is well positioned to post strong earnings growth during F2013 due to stable royalty rates, strong connected tablet and smartphone sales driving stable ASP (Average Selling Price) trends, increasing market share for integrated chipsets as 28-nanometer supply improves, and strong 3G device sales in emerging markets," wrote Canaccord Genuity analyst Mike Walkley, in a recent note.

Apple's new iPhone 5 , in particular, looks set to boost Qualcomm. The San Diego-based company provides a power management chip, an LTE modem and an RF Transceiver for the Apple phone, continuing its strong partnership with the tech giant.

Canaccord Genuity's checks indicate strong demand for the iPhone 5, which contains Qualcomm's MDM 9615 LTE technology. The firm also has high expectations for forthcoming Qualcomm-powered Android LTE smartphones from the likes of Motorola, LG and HTC, as well as Microsoft(MSFT) LTE Windows 8 phones from Nokia(NOK) and HTC.

The next few months could therefore serve as the launchpad for a strong 2013, as the company lives up its billing as one of big beneficiaries of the push to LTE.

"We believe improving 28-nanometer supply and strong sales of high-priced LTE smartphones, such as the LTE iPhone 5 during Q4/C2012, combined with an increasing mix of connected tablets should result in higher CDMA device ASPs during the important December quarter holiday season," wrote Walkley. "We believe this could result in improved Q2/F2013 CDMA device ASPs."

Set against this backdrop, Qualcomm could offer investors a buying opportunity.

Nomura Equity Research analyst Romit Shah upgraded Qualcomm to buy from neutral earlier this week. Investors, he noted, are underestimating growth in Qualcomm Technology Licensing (QTL), its royalty business.

"QTL, which accounts for 75% of operating profits, has been a good business thus far (5-year sales CAGR 16%)," he wrote, explaining that 3G penetration rates in developed markets are a key driver. "However, the market in our opinion is underestimating 3G adoption in the emerging regions (Brazil, Russia, China and India)." Such is the importance of its royalty business that Qualcomm has reorganized itself to better protect its patents. The restructuring, which also aims to speed up product delivery, was completed on Oct. 1.

Under the new structure, parent company Qualcomm Inc. includes QTL, as well as the chipmaker's corporate functions and most of the firm's patent portfolio.

A new, wholly owned subsidiary, Qualcomm Technologies Inc. (QTI), along with its subsidiaries, now operates most of the company's R&D and its product and services businesses. The chip specialist's semiconductor business, Qualcomm CDMA Technologies, known as QCT, is operated by QTI.

At least one analyst, however, warns that investors could see some post-earnings volatility from Qualcomm.