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Smart Gainers From Smartphone Rally

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Without doubt, smartphone is the latest holy grail of the consumer electronics market. As such the market is full of many competitors, but a vast majority of profits is contributed by Apple Inc. (NASDAQ:AAPL) – the company with a first moving advantage; and Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) – which capitalized on the way shown by Apple.

At the start of the month, Samsung unveiled its latest offering in the form of the Galaxy S4. Meanwhile, other players which have been sitting on fence are also gearing up to pursue the market with increased zeal.

Samsung’s compatriot, LG Electronics Inc. (KRX:066570) (KRX:066575) aims to boost its smartphone sales by 50 percent up to 40 million units in 2013, as it launches a number of new devices.

Smart Gainers From Smartphone Rally

This means the competition will only heat up going forward even though the market continues to expand. This is not a very encouraging sign for most handset manufacturers as consumers have clear brand preferences by now. At the same time, the supplier market is never short of action and OEM preferences are not very rigid.

One such company is QUALCOMM, Inc. (NASDAQ:QCOM) which has emerged as a big winner from the spate of recent announcements. The company has been a leading supplier of mobile chips right from the days of initial Apple Inc. (NASDAQ:AAPL) products.

Some reports suggest the company’s 1.9 Ghz quad-core Snapdragon 600 processor would be shipped in as many as 70 percent of the first batch of 10 million Samsung Galaxy S4 units. Qualcomm processors will also make a debut on LG Electronics Inc. (KRX:066570) (KRX:066575) products this year.

The Korean company displayed four new handsets at the Mobile World Congress in Barcelona, including the flagship Optimus G Pro which will be initially launched in key target LTE markets, before being rolled out to over 50 markets. The company has been making inroads in other markets as well.

In August last year, QUALCOMM, Inc. (NASDAQ:QCOM) acquired Israel-based DesignArt Networks, a leader in small cell modem and system design for cellular base stations and high-speed wireless backhaul infrastructure. The stock has gained steadily this year and trades near its 52-week high; some of the positives for the stock have been a forward price earnings multiple of 13.5, a clean balance sheet and a dividend yield of 1.5 percent.

The Galaxy S4, being shipped in the end of March, will feature embedded chip from STMicroelectronics N.V. (ADR) (NYSE:STM) (EPA:STM) which had a forgettable 2012. The contract from Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) is crucial one indicates a new beginning for the company which had so far relied on Sony Corporation (NYSE:SNE) and Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V).

Having dissolved its loss-making joint venture with Ericsson, STMicroelectronics is looking forward to a fresh beginning in the U.S. telecom market and by the looks of its recent performance, it would not be a long wait for investors. The stock has already zoomed 11.7 percent in the last three months in anticipation of better financial performance. The stock trades just 13 percent above its book value and offers an exceptional dividend yield of 4.3 percent at current levels.

While QUALCOMM, Inc. (NASDAQ:QCOM) and STMicroelectronics N.V. (ADR) (NYSE:STM) (EPA:STM) are established players in the market, the real surprise is California based Broadcom Corporation (NASDAQ:BRCM). The company is largely known for its broadband communications products and the contract to supply NFC chips to Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930)’s latest product is nothing short of a coup.

In Samsung’s earlier smartphones, NXP Semiconductors was the prominent supplier of the NFC technology. In addition, the company’s NFC chips are found in Google’s Nexus branded smartphones and tablets. The stock generally has positive recommendations from analysts and its forward price earnings ratio of just 11 makes it one of best bargains in the sector.

The downside for these companies is that their future performance seems to be closely tied to that of a handful of players such as Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) and Apple Inc. (NASDAQ:AAPL). This may change going forward and players failing to create a diversified client base may lose out in a fashion similar to STMicroelectronics N.V. (ADR) (NYSE:STM) (EPA:STM).

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