Leading handset chipmakers Qualcomm (NASDAQ:QCOM) and Broadcom (NASDAQ:BRCM) recently reported strong results driven by the demand for mobile devices. Although there have been reports of weakness in consumer chip markets, smartphones and mobile devices like the iPhone and iPad continue to defy the trend. Broadcom has been a supplier for both the iPhone and the iPad for the past few years, while Qualcomm is soon expected join it as a supplier for the iPhone. Let’s take closer look

Qualcomm
Qualcomm reported fourth quarter revenue of $2.95 billion, up 10% y-o-y and 9% q-o-q and a record 111 million mobile station modem (MSM) shipments. Profit was $865 million, or $0.53 per share, up from $803 million, or $0.48 per share last year. Non-GAAP EPS was $0.68, up 42% y-o-y and 19% q-o-q. The company ended the quarter with $18.4 billion in cash after paying $305 million in dividends and repurchasing shares worth $122 million.

For fiscal year 2010, revenue was $10.98 billion, up 6%, while non-GAAP EPS was up 88% to $2.46.  Qualcomm is benefiting from the global adoption of 3G and accelerating consumer demand for wireless data. Much of its profit comes from licensing patents based on its 3G technology. It has over 185 licensees, including about 65 Chinese licensees. It is also pushing into the microprocessor business with its Snapdragon processor and has a leading position in providing chips for Android and Windows Phone 7 phones. Qualcomm is also preparing to extend its dominance to 4G. It recently purchased 4G modem chip house Sandbridge Technologies Inc. for $55 million.

Qualcomm has commenced a restructuring plan under which it expects to exit its struggling FLO TV service business. It expects to incur restructuring charges of $125 million to $175 million in fiscal 2011. Based on the strong demand as well as the growing adoption of 3G, Qualcomm gave a strong outlook that beat expectations. For the first quarter, it expects revenue of $3.05 billion to $3.35 billion and adjusted EPS of $0.70 to $0.74. It expects CDMA and multimode 3G and 4G-based device shipments to grow 20% in 2011. Finally, it expects revenue of $12.4 billion to $13 billion in fiscal 2011 and adjusted EPS of $2.63 to $2.77.

Qualcomm–iPhone Deal
Apple is believed to have pushed up the forecast. Scott Moritz of Street.com reports that analysts expect Qualcomm to supply chips to the Verizon iPhone in January and also to the so-called world-phone iPhone 5 due out in June or July. Apple will be foregoing chips from Infineon, which was recently acquired by Intel. Infineon has been a supplier for all the iPhone models since the first one was released in 2007. An iPhone design win means millions in revenue and a huge play in the market for Qualcomm. The stock is trading around $48 with a market cap of about $78 billion. It hit a 52-week low of $31.63 on July 1 and a 52-week high of $49.8 on January 8.

Broadcom
Broadcom, on the other hand, has already reaped benefits of being an iPhone supplier for the past few years. Broadcom recently reported third quarter revenue of $1.806 billion, up 44%, led by a 27% sequential increase in the Mobile and Wireless business. Net income was $327 million, or $0.60 per share compared to $85 million, or $0.16 per share last year. The company ended the quarter with cash position of $2.9 billion.

For the fourth quarter, Broadcom expects revenue to be $1.8 billion to $1.9 billion. Analysts expect Q3 revenue of $1.67 billion. The stock is trading around $42.34 with a market cap of about $22 billion. It hit a 52-week high of $41.98 on October 28 after the earnings release.

Broadcom’s Push into 4G
To expand its position in 4G, Broadcom in mid-October announced its acquisition of WiMAX house Beceem for $316 million. But Will Strauss of Forward Concepts says

I don’t expect Broadcom LTE modems to be announced before late 2011 or early 2012… Broadcom has been looking at ways to add LTE to its current 2.5G/3G cellphone chip line without having to start from scratch. And like all of the other WiMAX chip vendors, Beceem has been morphing into an LTE modem house, and Broadcom needs to field an LTE cellphone modem within the next year or so.

Both Broadcom and Qualcomm have made acquisitions in the 4G space. While Qualcomm has a strong position in 3G, Broadcom is trying to catch up.