QCOM Likely to Buy Stake in Sharp

One of the leading manufacturers of smartphone chipsets, Qualcomm Inc. (QCOM - Analyst Report), may acquire a huge stake in Sharp Corporation, by investing nearly 10 billion yen ($121.5 million).

Qualcomm is expected to make the investment of 10 billion yen in two installments, 5 billion yen through a private placement of new shares by the end of 2012 and the remaining part of the investment to take place after the new panel production begins.

An increased supply of TV-sets coupled with stiff competition from other TV manufacturers like Sony Corporation (SNE - Snapshot Report) and Samsung Electronics have hugely affected the electronic device business of Sharp thereby resulting in continuous fall in revenue in the last few quarters. Moreover, the company incurred a huge loss in the last quarter. So, huge investment from chipset giant Qualcomm will immensely boost the company’s business while moving forward.

Prior to Qualcomm, Sharp was heavily betting on Hon Hai Precision Industry Co. Ltd. to make the necessary investment to its electronic business. However, continuous decline in sales coupled with increasing debts of Sharp have considerably weakened its market position, which in turn resulted in a failure of investment agreement with Hon Hai Precision.

We believe that such an investment from Qualcomm will not only help the company to further diversify its business but at the same time will alow the company to consolidate its home device segment.

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