Why Qualcomm benefits from China’s LTE adoption progress

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Overview: Qualcomm benefits from China's LTE adoption progress (Part 1 of 7)

Qualcomm benefits from China’s LTE adoption progress

Qualcomm (QCOM) reported its fiscal 3Q14 earnings a few days ago, in which its non-generally accepted accounting principles (or GAAP) earnings per share (or EPS) of $1.44 was $0.24 above the midpoint range of the company’s previous guidance. Its revenues of $6.8 billion were up 9% year-over-year (or YoY). Qualcomm credited the better-than-expected earnings to better-than-expected sales of its mobile chipsets.

Faster LTE adoption in China important for Qualcomm

Qualcomm earns about half of its revenues from China, making it an important market for the company. It depends heavily on the faster adoption of high-speed LTE technology in emerging markets such as China. During the conference call to announce earnings, Qualcomm’s management mentioned that China Mobile (CHL) has launched LTE service in over 300 cities across China. It’s already benefiting from higher data usage by subscribers from high speed LTE network. China Mobile is the world’s biggest telecommunications provider, with more than 800 million subscribers.

It also mentioned that China Unicom (CHU) and China Telecom (CHA) have also been granted LTE FDD trial licenses. Both telecom companies are in the process of launching LTE service in 16 cities. Qualcomm is experiencing strong demand for its multimode 3G LTE chipsets because of this transition from telecom providers in China. According to a report from Wall Street Journal citing the China Academy of Telecommunications Research as the source, the shipments of LTE equipped phones in China increased from ten million in 1Q14 to 31 million in 2Q14.

This growth in China is certainly helping Qualcomm. It will also help exchange-traded funds (or ETFs) such as the PowerShares QQQ Trust (QQQ) that have decent exposure to Qualcomm.

Continue to Part 2

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