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Qualcomm Inc. (QCOM - Analyst Report), the largest mobile chipset developer globally, is expected to gain significantly in China over the near term. China Mobile, the leading wireless operator in China, has decided to sell five-mode 4G LTE (long-Term Evolution) handsets only from June 2014.

We expect Qualcomm will benefit the most from this decision as the company has the most powerful portfolio of five-mode LTE chipsets developed on its state-of-the-art baseband technology. The five-mode standard includes LTE, FDD-LTE, TD-SCDMA, WCDMA and GSM.

China Mobile is the largest mobile operator in the world in terms of subscriber count. At the end of Feb 2014, the company had around 775.6 million wireless subscribers. During the first two months of 2014, it added 1.43 million LTE subscribers.

Additionally, China Unicomand China Telecom have also started LTE services. We believe the significant growth of 4G LTE networks in China will boost royalty revenues of Qualcomm as more LTE enabled handset will enter the Chinese market.  

Qualcomm has more than 250 royalty bearing licensees worldwide. Additionally, the company has over 90 single-mode OFDMA licensees.The company also launched its innovative RF360 Front End Solutions. This new technology will solve the problem of LTE fragmentation faced by most of the large handset manufacturers. Currently, Qualcomm carries a Zacks Rank #2 (Buy).

However, a major concern for Qualcomm is the regulatory uncertainties in China. The company is facing an anti-monopoly investigation by the National Development and Reform Commission (NDRC), the regulatory authority of China. The company stated that it isn't aware of any activity that violates the anti-monopoly law in China and will continue to cooperate with NDRC. The investigation is likely to impede Qualcomm’s growth in China.

Moreover, aggressive competition in the mobile phone chipset market may hurt Qualcomm’s profits going forward. The company is facing severe competitive threat from its closest rival, Intel Corp. (INTC - Analyst Report), which has started shipment of its first multi-mode LTE baseband modem.

Competition is likely to emanate from formidable rivals like Broadcom Corp. (BRCM - Analyst Report) and Nvidia Corp. (NVDA - Analyst Report). The company also faces competitive threat from low-cost chip suppliers like Mediatek of Taiwan, VIA Technologies and Spreadtrum Communicationsof China.

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