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2 Chip Makers Are Winners From Google I/O Conference

Chris Lau, Kapitall: When Google (GOOG) holds its I/O conference between May 15 – 17, 2013, the company could announce a refresh to its Nexus 7 tablet. Google needs to step up its game in this space, because Apple (AAPL) is still holding the majority market share with its iPad. Last year, Apple recognized the competitive threat of Android tablets in the 7-inch space, and released an iPad mini that was larger in screen size, lighter, and thinner. [More from Chris Lau:  Preview on Nokia Lumia Event]

The Nexus 7 update is thought to have the following specifications, according to KGI Securities:

·       1900 x 1200 display

·       Quad-core Processor (APQ8064 app processor)

·       Wi-Fi/Bluetooth combo chip

·       NFC chip

·       Dual cameras

If Google chooses to power the device with a dual-core processor, the Qualcomm (QCOM) Snapdragon 800 chip will be like likely choice. As a point of reference, the Snapdragon 600 is used to power such devices as the HTC One, Galaxy S 4, and Optimus G Pro. The Snapdragon 800 is a faster chip that runs at speeds of up to 2.3GHz. The graphics processor uses an Adreno 330 chip that supports 4K resolution playback at a rate of 30 frames / second.

On the smartphone front, Qualcomm is currently the supplier for Samsung’s Galaxy S4. The chip maker supplies: the app processor, 4G chip, RF transceiver, the audio codec chip, and power management integrated circuit chips.

According to Kapitall.com, Qualcomm is valued with a price of profit (forward P/E) of 15. The company recently reported quarterly results with average selling prices dropping to $214-$220, down from $224-$230 in the September 2012 quarter. Qualcomm expects prices to be between $216-$224 in fiscal 2013.

The Wi-Fi/Bluetooth combo is made by Broadcom (BRCM). Since rallying to $36.62, the chip maker’s stock is valued at a forward P/E of 18. Barron’s recently added Broadcom on its list of the financially strongest companies. Sales and cash flow generation was used in the measure.

Investors should note that Qualcomm’s Snapdragon win will mean Nvidia’s (NVDA) Tegra chip will replaced. Since Google forecasts sales of 8 million units for the successor to the Nexus 7, the loss for Nvidia will be significant. Despite the possible bad news, Nvidia shares are performing well, thanks to a strong quarterly earnings report. The chip maker is outperforming Qualcomm over a 6-month period:

Written by Chris Lau

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