Qualcomm Is Surest Bet in the Mobile Market

NEW YORK (TheStreet) -- Without question, the pursuit for mobile device supremacy is the hottest battle on the market today. As rivals such as Apple (AAPL) and Google (GOOG) fight to put each other out of business, there are also chip companies such as Qualcomm (QCOM) looking to dominate form factors with each device launch.

However, with each passing quarter, it's evident that Qualcomm is winning its "internal" battles by a greater margin over Intel ( INTC), than say, Samsung is outgaining Apple in units sold. This means that so long as the mobile devices race continues, Qualcomm is the surest bet in this unreliable sector. And if Q1 earnings were any indication, this chip giant is not done rewarding investors.

The company was coming off an excellent Q4 during which profits surged 20% and revenue advanced 18%. But Qualcomm managed to blow these numbers away. For the period ending in December, the chip giant posted net income of $1.91 billion, up 36% year-over-year and 50% sequentially.

Revenue rose 29% year-over-year to $6.02 billion. This was good enough for a 24% sequential improvement. Likewise, EPS was impressive, arriving at $1.09 per share, up 35% year-over-year and 49% sequentially. Chip revenue rose 34% with no change in shipments and ASPs (average selling prices.)

There was a 22% increase in license revenue with a 6% increase in ASPs. However, the most impressive aspect was, aside from dominating chip sales, Qualcomm also made more money during the quarter. Not only did gross margins advance by 20 basis points, but it bested Street estimates by more than one point.

By contrast, Texas Instruments ( TXN) just posted revenue of $2.98 billion -- down 12% sequentially and down 13% year-over-year. Worse, this marked the fifth consecutive quarter of declining revenue. And the company is not expecting much sequential improvement as it issued revenue guidance that represents 6% decline.

This means that Texas Instruments expects to continue to lose market share not only from Qualcomm, but also Intel, which seems to be on a verge of a comeback after posing Q4 revenue of $13.477 billion that just barely missed estimates by less than 1%. Considering Intel's recent seemingly dysfunctional operation, this qualified as a win.

Then again, this further highlights the dominance of Qualcomm as the company continues to confound skeptics. As noted, one of Qualcomm's advantages is that it is one of Apple's major suppliers. But, ahead of the report, there were concerns about Apple's supply chain issues.

Plus, that Apple didn't woo the Street with its Q1 earnings results, there were many who rushed to proclaim the end of Qualcomm's stellar growth. That was not the case. The company was still able find growth while the rest of the sector suffered demand hardships.

Qualcomm continues to affirm why it has not only one of the best businesses in the entire market, but also one of the best management teams. And chip rivals such as Broadcom ( BRCM) and Nvidia ( nvda)will find it increasingly challenging to make a dent in Qualcomm's business.

To that end, Qualcomm continues to reinvest heavily in R&D to ensure that its chip technology remains the top choice as Apple, Samsung and the rest of the phone rivals battle it out. There are plenty of reasons to love this business and the stock. Not the least of which is that management raised revenue guidance -- suggesting that 2013 might be an even bigger year.

The stock seems cheap at current levels. I would be adding shares until the company shows meaningful signs of slowing growth. The stock has enough momentum to reach $75 to $80 by the second half of the year -- because regardless of who comes out on top in device dominance, Qualcomm wins either way.

At the time of publication the author held long positions in AAPL.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.

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