Qualcomm: the hidden play on China smartphones
By Emerging Money
Most of the buzz around the Chinese telecom stocks concentrates on handicapping the Apple ( AAPL , quote ) factor: who has the real iPhone or the iPad, who wants these hot products, how well they're selling. But there's a hidden trade riding all these devices -- whether they're bootlegs or not.
Qualcomm ( QCOM , quote ) makes the chips that put phones and tablet computers on the CDMA wireless networking standard. It doesn't matter who builds the device, if it works on a CDMA network, Qualcomm gets a cut of maybe $6 out of a $200 retail price.
This means that whether AAPL, Nokia ( NOK , quote ), Motorola, Samsung, ZTE ( ZTCOY , quote ) or anyone else sells the device, QCOM racks up incremental revenue.
Traders are familiar with how this proposition works in the U.S. phone market, but the analysts at Trefis recently had the idea of taking the story to China.
They point out that every Lumia phone from Nokia and every iPad or iPhone pumping out of Apple incorporates QCOM chips. And 20% of the world's smartphones go to China as that country's 1 billion mobile users start dumping their voice-only handsets and getting online.
Manufacturer by manufacturer, QCOM wins where Apple wins, so watch Apple's sales reports and build the numbers into your models of how well the notoriously analyst-shy chip maker is doing in China
But QCOM also wins when Nokia sells one of its Windows-enabled Lumia phones. And with Samsung on board -- and local Android favorites ZTCOY and Huawei signing massive supply contracts -- QCOM has that operating system covered as well.
Just between those five vendors, QCOM has a claim on maybe 75% of the Chinese smartphone market.
Likewise, in terms of the individual Chinese carriers, the potential is vast and only slightly less universal.
CDMA technology is deeply integrated into the 3G network that China Telecom ( CHA , quote ) runs, so essentially all of its maybe 36 million data customers need Qualcomm chips.
China Unicom ( CHU , quote ), on the other hand, dumped its CDMA network entirely, so whenever CHU signs a new account, QCOM may or may not make money -- it depends entirely on the phone maker's choice of chips.
And China Mobile ( CHL , quote ), the biggest of the "big three" and the most extensive wireless network on earth, is more controversial. While QCOM argues that its patents drive the China Mobile 3G standard, the claims have yet to be really tested.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.
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