Ever since Apple (NASDAQ:AAPL) announced that its latest iPad will ship in a LTE variant, Qualcomm (NASDAQ:QCOM) shares have continued to reach new highs. With Apple having officially standardized its baseband chips on Qualcomm’s since the launch of the iPhone 4S, it is widely believed that the iPad will also sport Qualcomm’s LTE chipset. This is adding more fuel to the bullish outlook supporting the stock since the start of the year. Less than three months into 2012, Qualcomm’s stock has already climbed by nearly 20% and is inching closer to our $67.15 price estimate now.
The iPad in itself may not be a very big value-add to the company since the popular tablet comes in two variants, the WiFi-only and the WiFi+4G, and it is only the later that may sport Qualcomm’s LTE chipset. However we believe that the year ahead promises to be exciting for Qualcomm as it readies to lead the LTE smartphone revolution with its recently launched integrated chipsets.
LTE adoption to pick up in 2012
Until now, the adoption rate for LTE in the U.S. has been sluggish at best. Verizon, which has the most widespread LTE coverage in the U.S., recently said that only about 5% of its subscribers use LTE. The reasons for this are numerous.
One, LTE networks have not been widely deployed yet. Two, LTE handsets are not only bulky and highly power-inefficient but also much pricier than their 3G counterparts. This is because the current handsets use separate app processors and baseband chipsets because the technology wasn’t mature enough to provide an integrated low-cost solution. Three, as a nascent technology, LTE networks are also more prone to outages, as we have seen with Verizon’s.
Having spent billions on their LTE networks, carriers such as Verizon are now willing to promote them heavily and launch nothing but 4G smartphones this year.  It is also bringing down the prices of its LTE smartphones to drive LTE adoption. The latest Droid 4 offering from Verizon is available for only $199. In addition, the wireless carrier is currently promoting an LTE data plan that offers twice the usual monthly data allotment for half the price. (see Verizon to Make the Big LTE Push This Year)
AT&T has also started to actively promote LTE, launching a multitude of LTE smartphones at the CES in January. (see AT&T Makes Big LTE Push at CES 2012) Sprint has just started to lay out its LTE network and will have its first markets ready by mid-2012, but expects to aggressively complete the roll-out by 2013.
With the carriers increasingly looking to promote LTE, it was becoming highly essential for chipset makers to design low-cost integrated chipsets that conserve space and power. By being the first to bring to market an integrated 28nm LTE modem, Qualcomm has met those needs to a large extent and looks set to ride the carriers’ widespread shift to LTE.Notes:
- Verizon Plans Broader 4G Rollout, Only LTE-Capable Phones, WSJ, March 13th, 2012 [↩]