In the fourth quarter, HTC’s revenue fell 2.9% year-over-year. More telling is that revenue dropped 25% from the third quarter to the fourth. Operating profits were worse, down 36% and 23% respectively. First-quarter profits will drop as much as a third from the fourth quarter of 2011, to $2.2 billion.

The first reaction to the news was hard to dispute. Samsung is set to overtake Nokia (NYSE: NOK) as the world’s largest handset company, and smartphones will be the driver of that success. Apple has taken the number three spot in the market. Its position is marked by the fact that it sells no inexpensive handsets. Smartphones are its sole product category, which makes its success all the more impressive. HTC has been marginalized.

HTC management has to ask itself the same question that LG, Motorola (NYSE: MMI), Sony Ericsson and Nokia do. At what point does an investment in the smartphone industry become financially foolish? At what point is it better to take and hold a 5% market share with modest R&D and marketing expenditures. Put another way, at what point is it best to surrender — at least surrender that foolish hope that there is a chance to overtake Samsung, with its colossal balance sheet, and Apple with products that come nowhere close to satisfying customer demand?

HTC was the latest smartphone company to have had a hot hand. Its sales in 2010 and early 2011 were extraordinary. Its smartphones had a number of features that made them competitive to the iPhone. HTC had unlocked the secret of making features of the Google (NASDAQ: GOOG) Android operating system competitive with the Apple OS. But it could not produce a product like the iPhone 4S or Samsung Galaxy S II. It also did not have the marketing muscle to pressure Apple and Samsung in the consumer markets.

HTC’s run is over now. That may not make sense, because it was doing so well a year ago. But Apple and Samsung have grabbed market share that they can hold because of better products and better finances.

Douglas A. McIntyre

Next quarter guidance is $0.91 to $0.97 EPS on $4.6 to $5.0 billion in revenues, while the consensus estimates are $0.89 EPS and $4.49 billion in sales.  For fiscal year 2012, Qualcomm is offering guidance of $3.55 to $3.75 EPS on sales of $18.7 to $19.7 billion; estimates are $3.59 EPS and $18.48 billion in sales. The company sees 146 to 154 million MSM units shipped in the current quarter.

The company ended its latest quarter with a cash arsenal of $22 billion or so if you include the cash equivalents and short-term investments.

Shares closed up 1.25% at $59.56 and the 52-week range is $45.98 to $59.84 and shares are trading up around $62.00 after a near-4% gain in the after-hours. 

Keep in mind that the market cap hit $100 billion today and that will drive the market well over the $100 billion mark if its holds up after the conference call.  Beating earnings estimates and raising guidance is welcomed.

JON C. OGG

We have now seen positive earnings out of ARM Holdings plc (NASDAQ: ARMH) Jim Cramer turned out to be very spot on when it came to his relative value tout in Broadcom Corporation (NASDAQ: BRCM) with its post-earnings reaction being up 7%.

Options traders are braced for a move of up to about $2.00 in either direction based upon the monthly expirations of puts and calls.

With the stock near a year high, the chart does not offer any great reads right now other than that the most recent support was around $57.25 and if the news is really unpleasant then the 50-day moving average is $55.37 and the 200-day moving average is $54.02.

Analysts still lean toward a ‘Buy’ consensus for their official ratings bias.  Thomson Reuters has a consensus target (mean target) of almost $66.00.

We would probably lean twoard waiting another quarter before expecting Qualcomm to boost its dividend, which has been the same for three consecutive quarters and currently offers investors a 1.5% yield.

JON C. OGG

It sounds good on the surface considering how bad things have been.  The problem is that gross profit as a percent of net sales in the quarter is expected to be about 35%.  That margin was about 41% a year earlier and that implies far worse earnings.  The new earnings guidance is $0.11 to $0.13 per share.  A year earlier was $0.51 per share and Thomson Reuters was calling for $0.35 EPS.

The company blamed “a shift in mix within mobility sales towards certain lower margin smartphones and mobile devices; a higher percentage of mobility sales in the overall revenue mix, largely driven by the Company’s expansion of Target mobile centers; and the impact of a more promotional holiday season.”  That is a lot of moving parts and too many for investors.

Another blame was “in large part to the underperformance of the Sprint postpaid wireless business and reflect further unanticipated changes in Sprint’s customer and credit models.  These changes resulted in fewer new and upgrade activations and a decline in Sprint postpaid revenues in the fourth quarter compared to the 2010 fourth quarter and compared to third quarter 2011.  In addition, fourth-quarter results reflect a highly promotional holiday season and ongoing pressures on consumer spending.”

Sprint Nextel Corporation is down as well on the news by 1.4% in the after-hours.  That is nothing compared to RadioShack Corporation (NYSE: RSH) with a drop of over 17% to $8.43.

The prior 52-week low was only $9.15.

JON C. OGG

A new study from Strategy Analytics shows that in the fourth quarter Apple shipped 37 million smartphones and overtook Samsung to become once again the world’s number one smartphone vendor by volume. Global sales of smartphones were up 54% to 155 million units. Between Apple and Samsung, sales were almost 74 million for the period — nearly half of the total.

Samsung announced its fourth-quarter earnings about the same time as Strategy Analytics released its figures. Its net income rose 17% over last year’s quarter to $3.6 billion. Over the course of 2011, the South Korean company shipped 300 million handsets. Apple’s recently announced earnings were even more impressive.

The data shows what it is like when an attractive market becomes saturated with the products from one or two companies like Apple and Samsung. Each has clearly demonstrated that it can make substantial money in the market. The same cannot be said of any of their rivals. Nokia just announced its unit sales fell sharply and that it lost $1.4 billion in the fourth quarter as sales fell 21%. It will rely on its new Lumia smartphone. While early sales have been encouraging, they are dwarfed by the market’s two leaders.

There is almost always hope among the third, fourth, fifth and perhaps sixth place companies, in many industries, that want to please investors with strong market share. The other contenders will continue to spend billion of dollars in the smartphone sector as they hope to climb the market share ladder. But Apple and Samsung have proved that consumers want their products and not the products of rivals. This gives the two companies strength beyond numbers. Product popularity usually leads to profits. Wireless carriers are willing to spend more on products from Samsung and Apple — especially Apple.

Other handset manufacturers that want to become part of the top tier in smartphone sales are chasing shadows. The hierarchy in the industry is set. There is no sign that companies other than the two leaders can change that. Trends show that no matter how hard they try or how much money they spend, their efforts continue to fail.

Douglas A. McIntyre

For the first quarter 2012, ST-Ericsson expects a very significant sequential decline in net sales, resulting from a combination of higher inventory at some of our customers, further weakening of legacy product sales, the effect of first quarter seasonality as well as the reduction, in the short term, of new product sales with one of our largest customers.

Though unnamed, Nokia is believed to be the customer ST-Ericsson is referring to here.

There is also a belief that Nokia will have to cut its rich 8.6% dividend yield as the company tries to conserve cash for the coming launch of its new smartphones using the Windows Phone 8 operating system from Microsoft Corp. (NASDAQ: MSFT). Lagging sales of the company’s cheaper feature phones aren’t helping either.

Nokia’s ADRs are down nearly -7.5% today at $5.31 in a 52-week range of $4.46-$11.75.

Paul Ausick

The note that stood out is one that one the surface doesn’t look like much.  Stern Agee’s Shaw Wu has maintained a Neutral rating on RIM. Harmless and non-endorsing enough on the surface.  Wu noted, “Yesterday, there was renewed speculation on RIMM getting acquired, this time by Samsung, causing shares to rally 8%.” The mention of Facebook even in the past is one that is just hard to believe even if the analyst here is not predicting that Facebook would be a bidder.

The Intrinsic Value was brought up with 75 million subscribers, its patents, BlackBerry OS, and push network… still Wu noted, “we are unsure if a price of over $10 billion makes sense. Currently, the company has a market capitalization of $9.2 billion, meaning upside could be limited. We believe logical buyers are AMZN, MSFT, Samsung, and possibly Facebook.”

Wu sees $5 to $7 billion as a potential value, which implies $9 to $13 per share.

The research note concludes, “While we believe RIMM’s valuation is depressed, we maintain our NEUTRAL rating as we continue to be concerned with its fundamentals where the company faces major product transitions with its new BlackBerry 10 OS late this year. In addition, we remain concerned with the competitive environment as AAPL gets more aggressive and GOOG Android continues to grow.”

JON C. OGG

Verizon Wireless, the joint venture between Verizon Communications Inc. (NYSE: VZ) and Vodafone Group plc (NASDAQ: VOD), did not just sit on its hands while AT&T tried to push through the T-Mobile deal. The company paid $3.6 billion for unused spectrum owned by SpectrumCo, a consortium of Comcast Corp. (NASDAQ: CMCSA), Time Warner Cable Inc. (NYSE: TWC), and Bright House Networks.

Other potential AT&T acquisitions include MetroPCS Communications Inc. (NYSE: PCS), Leap Wireless International Inc. (NASDAQ: LEAP), and even Sprint Nextel Corp. (NYSE: S). But none would be as good as a deal for Dish.

AT&T’s main problem is that it would have to pay a premium price for Dish — perhaps as much as $50/share, or about 70% above today’s share price. That would value Dish at around $22 billion, a steep price given that AT&T just paid out $4 billion to T-Mobile in break-up fees. Even Ma Bell can’t afford to pay that kind of money too often for nothing in return, and it’s a sure bet that Dish would want a substantial break-up fee as part of any deal.

A report at Bloomberg News notes that Verizon Wireless owns 56 percent more 4G spectrum than AT&T in the top 10 markets and 46 percent more in the top 100. Verizon Wireless also claims 107.7 million subscribers compared with AT&T’s 100.7 million. Had AT&T been able to acquire T-Mobile, it would have increased its spectrum by 62%, leveling the playing field.

Dish recently acquired wireless spectrum from two bankrupt satellite television companies for about $2.8 billion in a deal that is still awaiting FCC approval. Verizon’s deal with SpectrumCo also needs regulatory approval, and so far there is no indication that either approval is in trouble.

But what does AT&T want with a satellite TV business? Of course it could hive it off once the deal is done, but it might make more sense to go after MetroPCS or Leap, both of which are simply wireless carriers. Or AT&T might be able to get Dish to sell just the spectrum. That would not be the best deal for Dish shareholders, but the company’s management would certainly be able to retire following such a transaction.

Dish shares are trading up more than 2% today at $29.34 in a 52-week range of $20.85-$32.56. Shares of AT&T are up almost 1% at $30.30 in a 52-week range of $27.20-$31.94.

One issue to consider… Dish would have every right in the world to demand another massive deal break-up fee in case the telecom giant could not convince regulators that this is good for consumers.

Paul Ausick

The iPhone still does not have 4G capacity and it is not clear when that might happen. But, as more wireless firms use 4G as their flagship product, Apple loses ground in the sector.

It is also rumored that the iPad 3 will have a high definition screen and quad-core processor to give it more computing power than its predecessors

The world’s largest software company has now signed agreements with handset makers Samsung, HTC Corp., LG, and eight other makers, which together manufacture about 70% of all smartphones using the Android operating system. So, while Google may give away Android, the operating system is no longer free. But Google doesn’t get any payment — checks are made out to Microsoft.

Microsoft has been pressing smartphone makers for months to pay up, and most have been doing so. Google has spoken out against all the patent lawsuits over mobile hardware and software, but the company is hedging its bets with its acquisition of Motorola Mobility Holdings Inc. (NYSE: MMI). Apple has been particularly aggressive in pursuing what it believes to be Google’s patent infringements. Another aggressive actor is Oracle Corp. (NASDAQ: ORCL), which acquired the patents and copyrights on the Java programming language when it acquired Sun Microsystems.

Google may end up having to compensate handset makers for the Microsoft fees, especially if the new Windows Phone operating system starts to encroach on Google’s lead in mobile platform software. Nokia Corp. (NYSE: NOK) is not the only smartphone maker that will be using the new Microsoft mobile operating system.

One thing that might happen is that Microsoft could agree to license Windows Phone at a lower price if a handset maker agrees to replace Android with the new Microsoft operating system. Google, which derives virtually all of its revenue and profit from advertising, must be able to grow its mobile advertising base and to do that it needs Android out there on as many smartphones as possible. It’s a jungle out there.

Paul Ausick