iPhone Beneficiaries Qualcomm And Broadcom

Chipmakers Broadcom (NASDAQ:BRCM) and Qualcomm (NASDAQ:QCOM) recently reported their quarterly results. While Broadcom posted record sales on strong demand for electronic devices such as the iPad and iPhone, Qualcomm benefitted from the global growth in 3G. Let’s take a closer look.

Qualcomm reported third quarter revenue of $2.71 billion, down 2% y-o-y and up 2% q-o-q. Net income was up 4% y-o-y and down 1% q-o-q to $767 million or $0.47 per share. It ended the quarter with $17.6 billion in cash after paying $309 million in dividends and repurchasing shares worth $1.18 billion. Q2 analysis is available here.

There are about 1 billion 3G device users supported by 85% of the world’s networks. The market for 3G is expanding not only in terms of the number of users but in the number of devices using the technology. In addition to smartphones such as the iPhone, 3G devices now include e-readers, netbooks, and devices such as Qualcomm’s FLO TV personal television. However, Qualcomm is disappointed with the performance of its MediaFLO mobile TV business and is looking for a possible sale or partnership.

Qualcomm is also pushing into the microprocessor business with its Snapdragon processor as the line between computing and mobile phone devices blurs. Snapdragon has design wins in Google’s Nexus One smartphone and Dell’s Mini 5 Android tablet. The company shipped about 103 million CDMA-based MSM chipsets in the quarter, up 10%, and in the fourth quarter it expects to ship 106 million to 111 million.

For the fourth quarter, Qualcomm expects EPS in the range of $0.39 to $0.43, a decrease of 10% to 19% versus analyst estimates of $0.46. The company expects revenue to be in the range of $2.07 billion to $2.93 billion, a decrease of 1% to 9%. For fiscal year 2010, it expects revenue to increase 3% to 6% to a range of $10.7 billion to $11 billion and EPS to increase 78% to 81% to $2.33–$2.37. The stock is trading around $39 with market cap of about $62 billion. It hit a 52-week low of $31.63 on July 1 and a 52-week high of $49.80 on January 8.

Qualcomm is a major player in the Android ecosystem but not in the iPhone ecosystem. But this might change with a CDMA iPhone. Ian King of Businessweek points out that when the iPhone comes to Verizon, a CDMA network, Qualcomm would stand to gain because it is the only company that can provide the signal processor. The iPhone is rumored to come to Verizon in January 2011, and analysts expect 12 million sales of the CDMA iPhone. This would not just translate into millions of revenue for Qualcomm but also strengthen its position as the leading maker of mobile phone chips.

Broadcom, on the other hand, is already present in the iPhone and the iPad and has benefited greatly from their sales. Broadcom has been a supplier for the iPhone since 2007 when the first iPhone was launched. Apple has sold more than 50 million iPhones and is expected to continue its success with the iPad. Broadcom provides chips worth $9.45 in the iPad  and $9.55 in the iPhone 4. Based on the estimate of sales of 10 million each for the iPad and the iPhone 4 this year, Broadcom stands to gain about $20 million. Broadcom also gained market share at mobile phone vendors Nokia and Samsung Electronics.

Broadcom reported second quarter revenue of $1.6 billion, up 54%. Net income was $278.3 million, or $0.52 per share compared to $13.4 million, or $0.03 per share last year. It ended the quarter with cash position of $2.5 billion after repurchasing over $120 million in stock and paying dividends of $40 million. Q1 analysis is available here.

The record revenue was led by a 14% increase in the Mobile and Wireless business and a 15% increase in the Broadband business. For the third quarter, Broadcom expects revenue of $1.7 billion–$1.8 billion or 6%–12% growth driven by strength in these two businesses. Analysts expect Q3 revenue of $1.67 billion. The stock is trading around $37 with a market cap of about $18 billion. It hit a 52-week high of $37.79 on July 14.

Om Malik on Gigaom points to a note by Rodman & Renshaw’s Ashok Kumar that says Intel is about to acquire chipmaker Infineon. Intel together with Infineon could challenge Qualcomm and increase the competitive pressure on Broadcom, but for now Broadcom is reaping the benefits of being an iPhone and iPad design win.