Qualcomm Wins Chinese Contract

The leading global manufacturer of mobile phone chipsets, Qualcomm Inc. (QCOM - Analyst Report) recently won a contract from Chinese hand set maker, Zoom Technologies Inc. (ZOOM - Snapshot Report). As per the deal, Zoom Technology will install Qualcomm chipsets into their 3G-based hand sets by paying the universal rate of royalties to Qualcomm

With the growing popularity of 3G wireless services, the demand for 3G-based smartphones will increase. Zoom Technology, in order to seize this massive opening, has tied up with Qualcomm to launch 3G-based mobile phones in the Chinese market.

The company will  develop CDMA smartphones, which will be supported by the most popular Android operating system.

During this summer, Zoom plans to launch their new smartphone in China under their existing brand called “Leimone. The company also intends to launch these 3G-based CDMA hand sets in the North American and European markets by the end of 2011.

Qualcomm designs, develops and supplies semiconductors and collects royalties on wireless handheld devices and infrastructure based on its dominant position in CDMA and other related technology patents. With this new contract, they are all set to expand in the emerging Chinese mobile phone market.

We believe the company’s record-high earnings,strong balance sheet and solid management outlook for the current fiscal year will act as positive catalysts in the long run. Moreover, the gaining popularity of smartphones and tablets will further drive the stock upward.

However, stiff competition from formidable rivals like Broadcom Corporation (BRCM - Analyst Report) and Texas Instruments Inc. (TXN - Analyst Report) as well as from low-cost competitors like Mediatek of Taiwan and VIA Technologies of China will act as headwinds going forward.

We maintain our long-term Neutral recommendation on Qualcomm. Currently, Qualcomm has a Zacks#3 Rank, implying a short-term Hold rating on the stock.

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