Qualcomm Gets Boost From Motorola Rebound

As Motorola (MOT - commentary - Cramer's Take) gets its 3G groove on, look for Qualcomm (QCOM - commentary - Cramer's Take) to be a beneficiary.

This morning, Qualcomm lifted its fiscal fourth-quarter 2007 MSM-chip-shipment guidance from 65 to 68 million units, to 67 to 68 million units. One factor here may be Motorola's 3G success.

In the first half of 2007, Motorola was suffering from a late shift from 2G models to 3G models. As major rivals -- from Nokia (NOK - commentary - Cramer's Take) to Sony Ericsson -- were rolling out new W-CDMA phone ranges, Motorola's handset range was largely stuck in the 2G era.

It wasn't until the third quarter of 2007 that Motorola finally started rolling out a wide selection of W-CDMA handsets with high-end features like QVGA-quality displays and tactile-feedback touch screens. Motorola's key platform here is RAZR2 -- a new model with various 3G incarnations debuting both at CDMA carriers like Verizon (VZ - commentary - Cramer's Take) and Alltel (AT - commentary - Cramer's Take) and W-CDMA giants like AT&T (T - commentary - Cramer's Take) in the second half of the third quarter.

U.S. carriers like AT&T and Verizon all but stopped stocking Motorola models during the spring of 2007, creating a particularly nasty volume shortfall for Motorola and, to some extent, putting a lid on Qualcomm's high-end-chip momentum. During the third quarter of 2007, the proportion of 3G models of Motorola's entire handset portfolio has likely jumped abruptly. Motorola's global handset market share dipped to 13% or below in summer months -- this means that a major 3G platform like RAZR2 can have a pretty big impact.

I'm expecting Motorola's ASP level to tick up from that of the second quarter during the third quarter as the RAZR2 line makes its initial splash.

Qualcomm's high-end chip business is now entering an interesting phase -- it is likely getting one boost from Motorola's belated 3G transition and another from the even later W-CDMA roll-outs of Samsung and LG.

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At time of publication, Kuittinen had no positions in stocks mentioned, although holdings can change at any time.

Tero Kuittinen is managing director and senior analyst for Avian Securities, a brokerage firm specializing in technology companies. Although Kuittinen is an employee of Avian Securities the statements above are being made in Kuittinen's personal capacity and are in no way are the statements of Avian Securities, nor attributable to the company. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Kuittinen appreciates your feedback; click here to send an email.