Lately, whenever talking about the topic of Qualcomm [NASDAQ: QCOM] we generally find ourselves being both positive and optimistic. Qualcomm has been on a roll of sorts ever since 3G and smartphones began to become important trends in the consumer market.

Qualcomm’s calendar 4Q 2011 (fiscal 1Q 2012) was no different. Qualcomm reported $1.4 Billion in net income on $4.68 Billion in revenue resulting in an EPS of $0.81. Qualcomm’s revenue result represents a 40 percent increase year over year and a 14 percent increase over the previous quarter. Their net income also represented a 20 percent increase year over year and a 33 percent increase over the previous fiscal quarter. These figures included the results of Qualcomm Atheros, Inc. which was acquired by Qualcomm on May 24, 2011.

Dual-core Qualcomm Snapdragon S2 MSM utilizing world's most advanced 28nm process at TSMC lying on top of Intel 32nm Core i7-3820 quad-core processor.
Dual-core Qualcomm Snapdragon S2 MSM SoC processor utilizing world’s most advanced 28nm process at TSMC lying on top of Intel 32nm Core i7-3820 quad-core desktop processor: 1W vs. 90W. 

These figures were bolstered by Qualcomm’s record shipments of MSM processors, which are known to be Qualcomm’s bread and butter nowadays. Qualcomm reported MSM shipments of 156 million units which represented a 32 percent increase year over year and a 23 percent increase over the previous quarter. Any concerns that Qualcomm’s shipments and earnings would be impacted by HTC’s sluggishness appear to be unfounded at this point. Because Qualcomm has such a strong following in the industry and close relationships with nearly every single manufacturer and operating system, it enables them to be flexible when there are various ebbs and flows as a result of competition between them. Case in point are the latest smartphones from Nokia and Sony, all powered by Qualcomm’s Snapdragon processor.

The company also have invested huge resources into their developer relations and as a result, many applications and games have become optimized with Qualcomm’s MSM chips in mind. This creates an added value proposition for manufacturers, especially when Qualcomm builds in added optimizations for their hardware into various operating systems which manufacturers can harness for very little cost.

Interestingly, Qualcomm does not appear to be letting up considering their previous quarters and actually raised their outlook for the coming fiscal 2012 year (ending in 3Q 2012, rather than the calendar 4Q 2012). This can be seen in Qualcomm’s investments in R&D as they increased R&D spending in 1Q 2012 by 35% over the same period  last year. This is a direct result of Qualcomm’s expansion into the health industry with their new venture into health, Qlife, as well as their plans to get involved in the connected home with a combination between QCT(Qualcomm CDMA Technologies) and QCA (Qualcomm Atheros) technologies. Watch to see Qualcomm’s health and connected home business to grow significantly in the coming years to fill any gaps that may result from the consolidation in SoCs.

In addition to that, Qualcomm announced in 1Q 2012 that they had finally sold off the UHF spectrum attributed to their failed FLO TV venture as part of QSI. This spectrum was sold to AT&T at the healthy price of $1.9 Billion and essentially shored up any losses that Qualcomm may have incurred as a result of the discontinued operations. Honestly, Qualcomm really lucked out with this acquisition as they managed to acquire a large swath of spectrum before any actual auctions had occurred and became a nice insurance policy in the event that FLO TV failed.

Guidance for Fiscal Year 2012
In regards to Qualcomm’s guidance for FY 2012, the previous guidance indicated that Qualcomm expected revenues between $18 and $19 Billion with a diluted EPS of $2.80 to $3.00. Qualcomm had actually further increased their expectations for FY 2012 by increasing their revenue projections to $18.7 to $19.7 Billion and their EPS to $3.36 to $3.56. They also expect the ASP of smartphones to continue to go up as opposed to decrease as they had initially projected. They also increased their MSM shipment projections by an aggregate of 10 Million which would explain their expectations of increased revenue and profit.

Competitors start to pressure the company
While it is clear that 2012 will clearly continue to be even more of a year for mobile, we have to remind our readers that while Qualcomm is without a doubt firing on all cylinders, they do have competition. Qualcomm is working on getting their LTE modems integrated into their SoC processors which we believe will really begin to bring more manufacturers into adopting LTE. This processor, the MSM 8960, will features two of Qualcomm’s newest Krait cores with their LTE baseband chip integrated into it all while being manufactured at TSMC’s relatively new 28nm fabrication process. Because there has been little word of what kind of yields TSMC’s 28nm process has provided, we remain cautious in regards to how many MSM 8960 chips Qualcomm will be able to ship. Admittedly, Qualcomm’s chip will be the only one with such high performance all built into one chip, but they still do have competitors.

Qualcomm’s competition primarily lies with two companies at the given moment, one of which we didn’t think we’d be naming up until recently. In terms of NVIDIA, they have been a player in the smartphone arena for the past few years, but only recently dropped a bomb on their competitors with the Tegra 3 quad core processor. The real fear here, though, is that NVIDIA has also recently acquired a baseband company by the name of Icera and is likely to follow Qualcomm’s move with having their 4G LTE baseband built into their SoC as well, creating more competition for Qualcomm.

Here comes Intel
As if having one competitor wasn’t enough, Qualcomm also has Intel entering the arena with their Medfield processors. While Intel is a relative newcomer to the smartphone arena, there is no doubt that they are a company that is serious about executing. They have shown this through their constant pursuit of improving their processors’ power consumption as well as plans to integrate their LTE baseband chips into their SoCs. There have been no specific plans, but we expect Intel to be working very hard to accomplish the same as Qualcomm already has.

Intel smartphone reference design powered by 32nm Medfield SoC: Atom Z2460
Intel smartphone reference design powered by 32nm Medfield SoC: Atom Z2460

Intel also has their Silvermont processors coming out soon as well which will really bring the heat on Qualcomm as they will be a complete redesign of Intel’s smartphone and tablet processors on their new 22nm process. Because of these developments from their competitors, Qualcomm must remain vigilant and constantly executing on all fronts. If they do not maintain their current momentum, there is a strong chance that one or both of their competitors will take their place in the constantly moving and growing mobile market.

We believe that this year’s MWC will bring about many devices that will feature Qualcomm’s competitors’ processors and could potentially shake up the momentum that they are currently enjoying. It remains to be seen what will be released at MWC, but from our conversations with various companies there’s a very good chance we’ll see multiple flagship devices with and without Qualcomm’s MSM chipsets.

Qualcomm under U.S. Attorney Office and DoJ investigation
Qualcomm also noted that on January 27th,  they had been notified by Us Attorney’s Office and DoJ that they were being investigated regarding compliance with the Foreign Corrupt Practices Act. Qualcomm CEO, Paul Jacobs, claimed that Qualcomm believes that they are in compliance with this act and will continue to cooperate with both agencies believing themselves to be in compliance. As the story develops further we will be sure to keep you updated and give you as much information as we can find out.

Currently, though, Qualcomm’s beating of analysts’ expectations followed by an increase in their projected earnings has put the stock at a closing price of $62.54. The stock grew $0.74 or 1.26 percent in trading and $2.98 or 5 percent even in afterhours trading as a result of Qualcomm’s earnings results and upward adjusted earnings. Our outlook for the company is without a doubt optimistic, but we also believe that there is more real competition for them than ever before and that they need to now compete with two direct competitors instead of one… one of which is a much bigger company with their own fabs.