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Can Samsung Pick Up Apple's Slack for Qualcomm?

By Evan Niu, CFA - Apr 3, 2013 at 8:45PM

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Leading into new iPhone models, Apple may be facing a slowdown. If it weren't for Samsung's new models, Qualcomm might be concerned.

There's a wide range of opinion over how Apple's (AAPL -1.80%) iPhone unit figures will come in when it reports fiscal second quarter earnings on April 23. On one hand, the company is coming off of an all-time record quarter, and sequentially declines following the holidays are the norm for consumer electronics companies.

Analysts continue to ratchet down estimates on fears that iPhone sales aren't driving growth to the extent that investors are hoping, which puts even more pressure on upcoming models to reinvigorate momentum. Will potential iPhone weakness lead to shortfalls in Qualcomm's (QCOM -1.91%) figures, as the exclusive supplier of baseband modem chips?

Not if Samsung has anything to do with it, according to Susquehanna analyst Chris Caso. The analyst estimates that Apple produced roughly 35 million iPhone units in the March quarter, which is on the low end of his expectations. While that's below the consensus estimate of 37 million units, remember that there are a lot of factors like beginning inventory positions that make individual supply data points "not a great proxy for what's going on," even if they're accurate (a big if).

An iPhone slowdown is still entirely possible, but the good news for Qualcomm is that it was able to score a spot in certain geographical variants of Samsung's new Galaxy S4, which launches later this month. Samsung's been trying to use its Exynos chips as much as it can, but Qualcomm's power efficiency advantages aren't easily replicated.

Since Qualcomm enjoys roughly double the content in Galaxy S4 units compared to iPhone units (baseband and processor as opposed to just baseband), Samsung's flagship will give Qualcomm's chip businesses a boost. The licensing business will also benefit since Samsung's royalties are based on higher average selling prices, according to Caso.

That being said, Apple is expected to rebound later in the year as its product cycles have become more back-loaded, and new iPhone models are expected this summer.

Qualcomm rides the coattails of the two top smartphone vendors as they take seasonal turns launching their latest and greatest devices. When one slacks, the other picks up, and it's all gravy for Qualcomm.

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