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Risk, Reward Balance Qualcomm

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We reiterate our long-term Neutral recommendation on Qualcomm Inc. (QCOM - Free Report) . The company reported mixed financial results for the fourth quarter of fiscal 2013. Although total revenue outpaced the Zacks Consensus Estimate, net income fell below the same. Qualcomm currently has a Zacks Rank #3 (Hold).

Why the Reiteration?

Qualcomm provided a weak financial outlook for the first quarter and full fiscal 2014. Management cited decreasing growth rate of the high-end smartphones and growing competition in the low-end smartphone chipset segment are the primary reason for weak guidance.The company is facing severe competitive threat from its closest rival, Intel Corp. (INTC - Free Report) , which has been redesigning its chipsets for the mobile computing market. Intel has started shipment of its first multi-mode LTE baseband modem.

Competition is likely to emanate from formidable rivals like Broadcom Corp. and Nvidia Corp. (NVDA - Free Report) . Broadcom already introduced its first LTE baseband chipset in the market and Nvidia introduced Tegra 4i, its first LTE-integrated application processor. There is also competition from low-cost chip suppliers like Mediatek of Taiwan, VIA Technologies of China and Spreadtrum Communications.

Nevertheless, we believe that the long-term fundamentals of Qualcomm remain intriguing given the increasing demand for 4G LTE-enabled mobile handsets in the developed countries, rapid transition from 2G to 3G/4G in China and other emerging markets and increasing licensing revenues. Recently, Qualcomm unveiled an innovative smartwatch called “Toq”. This smartwatch can simultaneously receive phone calls, send messages and play music. The new product will be available in the market from Dec 2, 2013.

Moreover, Qualcomm has a highly diversified product portfolio. Several original equipment manufacturers are adopting high-speed 3G and 4G technologies for connecting tablets, eReaders, machine-to-machine communication devices, and gaming devices. Qualcomm’s Snapdragon platform and Gobi platform for global wireless connectivity support almost all varieties of mobile broadband equipment.

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