Qualcomm (NASDAQ:QCOM) is expected to announce its fiscal year Q2 2011 earnings on April 20th. Two particular developments that warrant a closer look are the performance of multi-mode chipsets and the outlook for Qualcomm’s royalty rates. We believe that these factors could play a key role towards weighting the upside or downside potential to our $53.82 price estimate for Qualcomm stock, which is currently in line with market price. Qualcomm competes with other chip makers like Texas Instruments (NYSE:TXN), Broadcom (NASDAQ:BRCM) and Infineon (PINK:IFNNY).
Is Qualcomm Ready to Tap LTE Technology Growth?
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- How Has Qualcomm’s Revenue Mix Changed In The Last 5 Years?
- What is Qualcomm’s Revenue & EBITDA Breakdown?
- What is Qualcomm’s Fundamental Value based on Expected 2016 Results?
- By What Percentage Did Qualcomm’s Revenue And EBITDA Grow In The Last 5 Years?
LTE, which stands for Long Term Evolution, is the 4G technology that will enable faster data transmission speeds to mobile devices. For example, Verizon is in the process of upgrading its network to LTE, and claims that the technology is capable of peak download speeds of 40 to 50 Mbps and peak upload speeds of 20 to 25 Mbps. This transition is most notably speeding up in developed markets.
Whether Qualcomm is ready to tap the growing LTE chipsets market remains to be seen. During its fiscal year 2010 earnings conference call, Qualcomm stated its intention to begin commercial production of a multi-mode chipset that will enable mobile phone users to transition from 3G to LTE technology.  We previously discussed this transition in a note titled ‘Qualcomm’s Multimode Chips to Help Market Share‘.
However, it will be interesting to see if management can deliver any further insight regarding its expectations for performance of the multi-mode chipsets. Since LTE is expected to be a fast growth market, Qualcomm’s expanding presence in the LTE chipset market could lift its chipset market share.
Qualcomm’s royalty rates have been declining for the past few years, dropping from 4.0% in 2008 to 3.2% in 2010.
However, the company’s most recent outlook for royalty rates in 2011 seems positive.  One reason for the expected up-tick in royalty rates in 2011 comes from the resolution of a dispute with an unnamed licensee that had been underpaying royalties.
Management has also mentioned that its guidance excludes the expected positive outcome from its ongoing arbitration with Panasonic. Panasonic alleges that Qualcomm breached a licensing agreement and seeks the return of royalties paid to Qualcomm.
Could these events bring further improvement in royalty rates for Qualcomm? This is one area we’ll keep an eye on.Notes: