Qualcomm

QCOM : NASDAQ : US$80.14
BUY 
Target: US$90.00

Technology — Communications Technology — Semiconductors
WELL POSITIONED TO BENEFIT FROM CHINA TD LTE
OPPORTUNITY, UPCOMING HIGH-TIER ANDROID
LAUNCHES AND IPHONE UPGRADE IN H2/C2014
Investment recommendation:

Based on our monthly survey work and
recent smartphone product introductions, we believe Qualcomm is
maintaining its dominant market share and strong content share in
leading Android smartphones. We have also increased our forecasts for
TD-LTE smartphones sold in China during 2014 and 2015, resulting in our increased Qualcomm estimates and price target.

We believe continued growth of smartphones; connected devices such as tablets; the upgrade to new air interface technologies such as LTE, LTE Advanced, and TDD-LTE;
and continued strong share for integrated Snapdragon solutions should
drive solid F2014 and F2015 sales and earnings growth. We reiterate our
BUY rating and increase our price target to $90 from $86.
Investment highlights
 We believe QCT operating margins remain well positioned to
improve during H2/F2014 due to an increasing mix of the new LTE
chipsets, growing TD-LTE opportunities in China, and improved
leverage from Qualcomm’s cost optimization programs. We believe
TD-LTE smartphones sold in China should exceed 120M units in
2014 for the three Chinese carriers, leading us to increase our
global 3G/4G device shipment and ASP calculations.
 We anticipate a greater high-end TD-LTE smartphone mix in China
should benefit QCT margins and drive QTL growth and could provide
upside to consensus H2/F2014 and more likely F2015 estimates. Due
to our increased TD-LTE unit assumptions, we have increased our
F2014 pro forma EPS estimate from $5.12 to $5.14 and F2015 from
$5.76 to $5.95 versus consensus of $5.11 and $5.70, respectively.
 Given our increased TD-LTE expectations combined with Qualcomm’s
strong content in the Galaxy S5 and HTC One M8, we believe revenue

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