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Still Neutral on Qualcomm

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We reaffirm our Neutral recommendation on Qualcomm Inc. (QCOM - Free Report) ahead of its fourth quarter of fiscal 2012 financial results. Earlier, management provided a lukewarm outlook for the fourth quarter. Nevertheless, the company is quite confident that it will bounce back in the first quarter of fiscal 2013 that marks the holiday season.

Qualcomm cited several reasons for this strong projection including (1) the 28 nanometer chipset supply problem will be solved by 3 additional foundry partners besides TSMC; (2) launch of a series of new smartphones and tablets including Apple Inc. (AAPL - Free Report) developed iPhone 5; and (3) a significant boost for 3G/4G networks in the emerging markets, which will offset the slightly muted growth of smartphones in the developed markets.

Qualcomm remains a beneficiary of the significant growth of 3G wireless technologies and smartphones in the emerging markets, particularly in China. Globally, approximately 85% of wireless networks at present support 3G technologies. According to Wireless Intelligence reports, more than 1.5 billion 3G subscribers will be added in these regions by 2015.  The next-generation super-fast 4G Long Term Evolution (LTE) technology has also boosted Qualcomm. The growing acceptance of LTE technology has prompted the mobile handset manufacturers to develop phones that will be compatible with this network. Qualcomm is gradually increasing the shipment of its dual-core Snapdragon MSM 8960 chipsets.

Meanwhile, the stock price has soared nearly 20.5% in the last year. We believe Qualcomm is fairly valued at this stage. We are yet to observe the positive factors mentioned above operating in full swing.

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