Qualcomm’s (NASDAQ:QCOM) stock price in seeing an uptick after the company delivered robust revenues of $4.12 billion, a 40% year-on-year increase, in Q3 2011, led by strong demand for smartphones. Management anticipates better performance next quarter with strong expected sales of the iPhone 4S that has Qualcomm’s chips installed. (See Qualcomm’s Earnings Show Chips Have the Mojo to Ride the Smartphone Wave) In addition, the Atheros acquisition earlier in the year should slightly boost its chipset pricing as Qualcomm consolidates its chipset portfolio with Atheros’ Wi-fi, Bluetooth, Ethernet and GPS chipset products. However, a slew of cheaper smartphones and competitive pressures from peers like Texas Instruments (NYSE:TXN) and Broadcom (NASDAQ:BRCM) should keep the pricing pressure on.

Our complete analysis for Qualcomm’s stock is here.

Qualcomm Benefits from Strong Smartphone Demand, Atheros Acquisition

Qualcomm makes money from the sale of mobile handset chips as well as royalty through the sale of each mobile phone. The chipsets and royalties businesses together account for 3/4th of its stock value, by our estimates.

With growing demand for smartphones, particularly in emerging economies, Qualcomm stands to benefit greatly. By acquiring Atheros, Qualcomm has inherited Atheros’ Wi-fi, Bluetooth, Ethernet and GPS chipset products which will help it significantly improve its mobile phone technologies and thereby gain from the growing adoption of 3G in emerging countries.

The company recently introduced Skifta 1.0 for Android smartphones and tablets. According to the press release, “Skita transforms any Android device into a global media remote control that lets consumers access and enjoy their music, videos and photos at home over Wi-Fi and on the move with 3G from wherever their media resides – at home, in the cloud and anywhere.”

The company expects stronger sales next quarter led by the phenomenal success of the iPhone 4s. Nokia’s recently released Windows OS smartphones, Lumia and Asha, are also powered by Qualcomm’s chips.^[1]

Cheaper Smartphones Could Add to Pricing Pressure

In an effort to generate more sales and due to competitive pressures, mobile makers are cutting prices on mobile phones making them more affordable to consumers. This also puts pressure on Qualcomm to reduce its chipset prices. iSuppli’s tear-down analysis of the iPhone 4S suggests that each Qualcomm chipset installed in the phone costs $14-$15, which is lesser than the expected average pricing of $17 for 2011. (Read: Qualcomm Gets Big Win Over Infineon with iPhone 4S)

While we expect the average price of a Qualcomm’s mobile phone chipset will increase from $17 in 2012 to $16 by the end of our forecast period, Trefis members project an increase from $18.4 to $19.4 during the same period. The member estimates imply an upside of 7% to the Trefis price estimate for Qualcomm’s stock.

We currently have a Trefis price estimate of $59.32 for Qualcomm’s stock, about 14% above the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

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