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Is This New Partnership Good for QUALCOMM, Inc. (QCOM) Stock?

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With the recent announcement that QUALCOMM, Inc. (NASDAQ:QCOM) will be investing with French telecommunications equipment company Alcatel Lucent SA (ADR) (NYSE:ALU) in a new joint venture, investors on both sides seemed to approve of the idea, with Qualcomm and Alcatel shares making gains after the announcement. But Alcatel’s current financial situation is less than rosy, so is the partnership really a good move for Qualcomm?

A big bet on smaller tech
Though neither company has disclosed how much they’re putting up individually, the two companies have agreed to bring together $132 million in research and development funds to work on small-cell technology. Small-cell tech increases wireless data capabilities in high-traffic areas like shopping malls, college campuses, or heavily populated city streets.

Alcatel-Lucent 9362 Enterprise Cell. Source: Alcatel-Lucent.

QUALCOMM, Inc.Alcatel Lucent SA (ADR) (NYSE:ALU) will bring its lightRadio small-cell technology to the table, while QUALCOMM, Inc. (NASDAQ:QCOM) will pitch in its FSM9900 small-cell chipsets. Small-cell technology puts 3G, 4G and Wi-Fi capable networks into a shoebox-sized device, allowing increased signal strength and data capacity where large towers aren’t feasible.

As mobile traffic increases, small cells are being used by more wireless carriers, including the No. 2 largest carrierAT&T Inc. (NYSE:T). The company began testing small cells within its network in 2012 and plans to deploy more than 40,000 small-cell stations by 2015. Just last month, AT&T won an award for its contributions to the small-cell industry and the company says it’s rolling out the broadest small-cell initiative of any carrier.

AT&T’s small-cell program shows a broader move to the technology, and estimates for the small-cell industry are projected to be around $2 billion by 2016.

Mutual interests
For Alcatel Lucent SA (ADR) (NYSE:ALU), QUALCOMM, Inc. (NASDAQ:QCOM)’s investment couldn’t have come at a better time. The company’s been losing money hand over fist recently, and just reported a year-over-year net loss of $1.7 billion in the second quarter. Alcatel’s in the process of restructuring its business and looking for strong partners to move the company forward, and Qualcomm’s leadership in the industry can definitely help it with that.

For QUALCOMM, Inc. (NASDAQ:QCOM), the benefit comes in moving further into the small cell industry. Ian Ing, an analyst at Lazard Ltd (NYSE:LAZ), thinks the Alcatel Lucent SA (ADR) (NYSE:ALU)-Qualcomm partnership could bring anywhere from $0.08 to $0.29 per share for Qualcomm investors, at peak run-rate. But Ing believes Qualcomm will benefit more from licensing the small-cell base stations than from the company producing more chipsets. Either way, it seems the company is in a position to gain.

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