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We reiterate our long-term Neutral recommendation on Qualcomm Inc. (QCOM - Analyst Report). The company reported strong financial results for the third quarter of fiscal 2013, beating the Zacks Consensus Estimate. Qualcomm currently has a Zacks Rank #3 (Hold).

Why Kept at Neutral?

We believe that Qualcomm will continue to perform well due to a significant surge in the demand for smartphones and tablets. Management has raised its outlook for fiscal 2013 and is quite confident that it will be able to retain its current rate of revenue and earnings growth, going forward.

We believe that the long-term fundamentals of the company remain intriguing given the increasing demand for LTE-enabled mobile handsets in the developed countries, rapid transition from 2G to 3G and 4G in China and India and increasing licensing revenues. Qualcomm has a very healthy cash position, helping it to undertake several R&D activities for the next-generation products.

Qualcomm is a major chipset supplier to Samsung, which is currently the largest seller of smartphones globally and a major chipset supplier to Apple Inc. (AAPL - Analyst Report) for its popular iPhones. Google Inc. has decided to use Snapdragon processor for its latest Nexus 7 tablets. Qualcomm has been favored by the Windows 8 operating system of Microsoft Corp. (MSFT - Analyst Report).

During the third quarter of fiscal 2013, Qualcomm shipped 172 million MSM chipsets, up 22% year over year. This figure was far better than the company’s guidance of a mid-point of 168 million. Average selling price of mobile handsets with an in-build Qualcomm chipset during this quarter was around $227-$233. This sequential increase registered a substantial hike of $13 from the last quarter’s mid-point.

Nevertheless, the ongoing global economic volatility may severely impact the telecommunications industry, which in turn may negatively affect the demand for Qualcomm developed chipsets. Qualcomm’s future growth depends on the continuous deployment of CDMA/OFDMA-based network technologies.

If the emerging markets fail to maintain the current rate of installing high-speed 3G, next-generation 4G or any hybrid 3G-4G wireless networks, the demand for smartphones will decline, which will affect Qualcomm’s financials.

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