Telecommunications

By Dan Gallagher, MarketWatch

SAN FRANCISCO (MarketWatch) — Growing demand for smartphones has fueled recent investor confidence in companies that make chips and handsets — as well as those who run the networks.

In particular, three key companies in this market that are reporting results next week have seen their shares bid up notably over the past few months.

VZ 34.95, +0.34, +0.98%
QCOM 51.24, -0.10, -0.19%
MMI 34.88, -0.17, -0.49%

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40%

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Verizon Communications Inc.(VZ 34.95, +0.34, +0.98%) is up more than 9% over the past six weeks. The stock has cooled a bit since hitting its highest point in nearly three years earlier this month — prior to the carrier’s announcement that it would begin selling the popular iPhone 4 in early February. Read full story on Verizon's iPhone debut here.

The stock has sharply outperformed rival AT&T Inc.(T 28.33, +0.10, +0.35%) , which has slipped back to its pre-holiday level.

Motorola Mobility(MMI 34.88, -0.17, -0.49%) has watched its shares jump by 12% since the stock began trading officially on its own on Jan. 4, following a spin-off from its Motorola Solutions counterpart. Mobility shares began trading on a when-issued basis at $27.50 in mid-December, and the shares have surged by 40% since that period.

Qualcomm Inc. (QCOM 51.24, -0.10, -0.19%) is up more than 9% in the past six weeks and climbed an impressive 42% in the past six months.

The three have helped to drive growth of the Nasdaq Telecommunications Index(IXTC 229.88, +0.26, +0.11%) by about 7% since the beginning of November — similar to the performance of the broader Nasdaq Composite Index.

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All three companies are considered key plays on the fast-growing market for smartphones. Verizon is one of the country’s largest wireless carriers that has been competing hard with AT&T since the latter got an exclusive deal to sell the first iPhone from Apple Inc. (AAPL 326.72, -5.96, -1.79%) in 2007.

Since then, AT&T has watched its smartphone business grow rapidly. Verizon has pushed back with heavy promotion of alternative smartphone platforms such as Google’s(GOOG 611.83, -14.94, -2.38%) Android operating system and the BlackBerry platform from Research In Motion(RIMM 61.55, -0.85, -1.36%)

Verizon is slated to report fourth-quarter results on Tuesday morning. Analysts are expecting earnings of 55 cents a share, up from 51 cents in the same period last year, with revenue declining by 14% to $26.5 billion, as more of the traditional wireless business fades away. The company’s guidance for first-quarter earnings, however, may be lower, given the subsidies it will have to pay out for the iPhone.

“The key investment issue for Verizon investors, in our view, is how the iPhone will impact earnings after 2011,” wrote Shing Yin of Citadel Securities.

The analyst predicted that, by 2012, Verizon’s margins “should reap the benefit of higher postpaid ARPU [average revenue per user] driven by rising smartphone penetration.”

AT&T will report its own results Thursday morning. It will be the carrier’s final period with exclusive access to the iPhone. Analysts expect earnings of 54 cents a share on revenue of $31.5 billion, according to consensus estimates from FactSet Research.

Motorola will report results on Wednesday afternoon. Analysts expect earnings of 36 cents a share on revenue of $3.4 billion.

Closely watched will be the company’s smartphone shipments for the quarter as it launched new Android handsets with both Verizon and AT&T. Its forecast will also be watched, as Motorola is expected to launch a tablet device later this quarter.

“We believe Android has a positive impact on pricing power of Android-backed vendors, already visible in Motorola’s sequentially improving gross margins since the first quarter of 2010,” wrote Pierre Ferragu of Bernstein Research in a report Friday.

Qualcomm also reports results Wednesday afternoon. The company makes chipsets and licenses other technology for smartphones and other wireless devices. The company is also expected to benefit from the expansion of the iPhone, which will employ its CDMA technology at Verizon.

“We believe Qualcomm continues to see solid traction in Snapdragon and integrated solutions,” wrote Tim Luke of Barclays in a note earlier this week. Snapdragon refers to a chipset solution used in smartphones and other portable devices.

Dan Gallagher is MarketWatch's technology editor, based in San Francisco.