QCOM, BRCM on Tap: Prospects Undiminished by Apple Results, Say RBC, FBR

Chip makers Broadcom (BRCM) and Qualcomm (QCOM) will report results tomorrow and Wednesday, respectively, both after market, and the Street today is revving up its prognostications for the events.

Qualcomm is projected to report $5.9 billion and $1.13 per share for its fiscal Q1, while Broadcom may report $2.06 billion and 74 cents a share in Q4 results.

RBC Capital’s Mark Sue, reiterating an Outperform rating on Qualcomm shares, and a $75 price target, projects revenue of $6 billion and profit per share of $1.08, citing some weakness in the results from trends at Apple (AAPL). Among important things to watch for are Qualcomm’s comments regarding total chipset unit shipments this quarter, which might be 168 million, followed by 179 million the following quarter, and 717 million for the full year. He thinks the chipset division, known as “QCT,” may record operating profit margin of 18.5%, an improvement from last quarter’s 15.5%, as production yields improve for the chips Qualcomm has fabbed for it at 28 nanometer dimensions.

Sue, moreover, thinks Qualcomm may benefit as investors try to avoid getting trapped with either Apple or Samsung Electronics in a still-volatile smartphone market where smaller players may see gains this year:

Smartphones: year of the little guys. CY12 saw Samsung, Apple garner 55% smartphone share; CY13 may see share gains from smaller players: Sony (SNE), RIM (RIMM), Huawei, ZTE and Lenovo. Smartphone cycle times are accelerating with vendors increasingly relying on Qualcomm�s 8960-family [�] Picking a smartphone winner is getting tricky; Apple�s gains are Samsung�s pain, but may quickly revert as Apple now struggles with weak guidance. Qualcomm benefits either way, selling to a broad range of customers. Smartphone adoption, growth of 3G/LTE in emerging markets and mobile computing may drive Qualcomm�s double-digit revenue/earnings growth in CY13 and beyond with less volatility.

Craig Berger with FBR Capital reiterates an Outperform rating on shares of Broadcom, projecting “strong” results that may be “several pennies better than the Street’s $0.73″ per share consensus, as he sees it.

Berger thinks people have made too much of Apple’s Q1 iPhone performance as a negative for Broadcom:

While much has been written about Apple order cuts (which likely did come into play during December), we generally think Apple was a strong component purchaser in 4Q12 versus 3Q12, with 4Q12 purchases likely sequentially higher due to the back-end loaded nature of the iPhone 5 launch and related builds (due to in-cell screen yield production challenges) [�] Based on our history with Apple production patterns we conclude: (1) visibility�into March monthly production is very low three months out (almost a placeholder); (2) iPhone production forecast volatility can be meaningful; and (3) underlying Apple demand trends remain solid. Beyond this, we do think Apple component purchases will decline about 10% QOQ in 1Q13 given roughly flattish device production (across iPhones and iPads) and Apple’s component buy- ahead of one to four weeks. 2Q13 production should be the seasonal low for component suppliers ahead of an iPhone 5S launch. Nevertheless, Apple (and Samsung) component suppliers remain best positioned for 2013 of all.

Berger also thinks chips for “near-field communications,” of NFC for the next iPhone, as well as, perhaps, a chip for the faster WiFi standard known as “802.11ac”:

With much discussion about NFC in the iPhone 5, we see a 50% chance the next iPhone (5S) will include NFC powered by Broadcom’s BCM43341 (with the other 50% chance that Apple uses faster 802.11ac WiFi also powered by Broadcom). Our confidence stems from (1) Apple finally has a trusted, high-quality vendor to help facilitate board design; (2) the BCM43341 likely has an overall BOM cost lower than discrete parts; and (3) integration drives better power efficiency, attractive to Apple. We believe some outstanding questions are (1) will Apple have a payments platform available to launch in late 2013? (2) will Apple successfully design and implement the NFC RF (as NFC operates at a different RF frequency than WiFi/BT)? and (3) will NFC be included in future iPads?

For the current quarter, Berger thinks Broadcom may forecast sales of $1.95 billion to $2.10 billion, which would be slightly better than the $1.996 billion the Street is projecting.

He adds that looking forward, the announcement by Broadcom of a “baseband” wireless chip for long-term evolution, or LTE, is a “wildcard” that could provide upside for the stock. It’s possible that the company will announce something at the Mobile World Congress event in Barcelona in February.