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November 08, 2012

Qualcomm Story Kicking In Big Time

Qualcomm (QCOM) bucked the trend of negative earnings and lowered guidance that has been prevalent in technology stocks this quarter. The company reported a good old fashioned “beat and raise” quarter. The shares are responding very well, up 4% in a down market.

I like QCOM because it is the Intel of smartphones. Much as Intel chips powered the PC revolution of the 1990s, QCOM chips and technology is powering the smartphone revolution of today. In its most recent quarter, QCOM saw better than expected demand and profit margins as it appears to have overcome supply constraints first encountered earlier this year. Even more bullish, the company forecast much better than expected demand for the December quarter and fiscal year 2013. Guidance for those periods is way ahead of analyst expectations.

For some time, I have been waiting for the proverbial tipping point when smartphone sales would trigger a breakout in QCOM’s financial results. It appears the breakout is finally happening. The elimination of supply constraints is coinciding with surging smartphone demand at the high end (new phones from Apple and Samsung) and low end (cheaper smartphones enabling emerging market subscribers to finally upgrade). This tipping point is occurring when investors are nervous, so the positive flow through to the shares is more pronounced.

The multiyear outlook for smartphone demand is excellent. Global subscribers with smartphones should more than double in the next several years. QCOM has a long runway of growth ahead. A move in the shares to $75-80 in 2013 is well within the realm of possibility.

Qualcomm is widely held by Northlake Capital Management LLC, including in Steve Birenberg's personal accounts. Steve is sole proprietor of Northlake, a long only registered investment adviser. Qualcomm is a net long position in the Entermedia Funds. Entermedia is a long/short equity hedge fund focused on media, entertainment, leisure, communications and related technologies. Steve Birenberg is co-portfolio manager of Entermedia, owns a stake in the funds' investment management company and has personal monies invested in the funds

Posted by Steve Birenberg at November 8, 2012 11:27 AM in QCOM