Qualcomm – 20% Upside from Mobile Phone Market Growth

QCOM: Qualcomm logo

Qualcomm (NASDAQ:QCOM) sells mobile chipsets and provides its CDMA mobile phone technology to companies like Motorola (NYSE:MOT), Samsung and LG. According to a recent report from Gartner, the mobile phone market grew by 35% in Q3 2010 over Q3 2009, which might indicate that the mobile phone market is trending towards faster growth in the future. [1]

We estimate that Qualcomm’s mobile phone chipsets business constitutes around 44%, with mobile phone royalties adding another 31% to our price estimate for Qualcomm stock. Qualcomm competes with players like Broadcom (NASDAQ:BRCM), Texas Instruments (NYSE:TXN) and Infineon Wireless, which was acquired by Intel (NYSE:INTC). Accelerating growth of the mobile phone market would be a positive for all these players.

Currently, we forecast an average annual growth of 6% for the mobile phone market. However, if this market continues to grow at an average rate of 10%, there could be an upside of more than 20% to the $50 Trefis price estimate for Qualcomm stock.

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20% Upside from Mobile Phone Market Growth

We estimate that the global mobile phone market has grown from around 1 billion in 2006 to 1.24 billion in 2009, at a an average historical annual growth rate of 8%. We conservatively expect it to continue to grow at an average rate of 6% to reach 1.8 billion by the end of Trefis forecast period.

Although the Gartner report indicates fast growth in 2010, it will be interesting to see if this growth can be maintained in the future, since this growth came off of a smaller base in 2009. In 2009, the mobile phone market declined due to the prevailing global recessionary environment.

If the market is able to maintain an average annual growth rate of 10% going forward, it could reach about 2.4 billion by the end of the Trefis period, well beyond the 1.8 billion that we currently forecast. This scenario would yield an upside of more than 20% upside to our estimate for Qualcomm stock.

You can see the complete $49.93 Trefis Price estimate for Qualcomm stock here.

  1. Mobile Phone Market, Gartner, November 2010 []