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Profit From the Push to 4G LTE

Verizon Wireless is betting heavily on this high-speed standard -- here's how you can take advantage of this trend.
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Yesterday, Verizon Wireless, which is jointly owned by Verizon Communications (VZ) and Vodafone (VOD), announced its plans to double the number of market across the U.S. that have 4G LTE service to at least 400 by the end of 2012. That equates to 260 million Americans, far surpassing the 150 million that AT&T (T) targets by the end of this year. As part of its strategy Verizon Wireless will only unveil smartphones capable of running on its 4G LTE network from now on. Shrewd investors can position themselves to take advantage of this looming high-speed push with a trio of ancillary equipment plays.

While this move raises the bar for AT&T to build out its 4G LTE network, it also resurfaces on-again/off-again questions about Sprint-Nextel's (S) next-generation network dubbed Network Vision given the expected split with Lightsquared, which was to be a key part of Sprint's network migration to 4G LTE. Not only did Sprint share plans for an aggressive buildout of Network Vision, the company is also currently juggling a CDMA network, an iDEN network for Nextel and a WiMax network with Clearwire (CLWR).

Should Sprint terminate with Lightsquared, it will cost at least $65 million to exit the relationship. From my perch, such a move would place further burden on an already unfavorable balance sheet characterized by net debt near $5 a share amid several quarters of bottom-line losses. Do we need another go-round with yet another network when Sprint has yet to make meet postpaid subscriber expectations over a prolonged period?

While Sprint will likely continue to suffer (I can't see a reason to own the shares), Verizon's buildout and the likelihood of AT&T stepping up its 4G LTE offering in response spells good things for wireless semiconductor companies. Of those, Qualcomm (QCOM) is well positioned given the Verizon Wireless 4G LTE buildout, as those devices will need to be backward-compatible with CDMA. The 4G LTE buildout adds even more RF bands to the device, and that spells good things for RF semiconductors companies; Skyworks Solutions (SWKS) is well positioned strategically and comes at a favorable reward/risk tradeoff with long-term upside to $35.

Another beneficiary of the 4G LTE buildout is InterDigital (IDCC), which carries one of the largest 4G LTE patent pools and last night inked a licensing agreement with Swiss semi provider U-blox that covers wireless modules for consumer electronics and machine-to-machine devices across 2G, 3G and the 4G LTE standards. As I said in late January after the Board shuttered the plan to sell the company, InterDigital would need to announce incremental licensing wins generally and more specifically ink 4G LTE licensing deals in order to restore investor confidence in the strength of the company's patent portfolio. The U-blox agreement is a step in the right direction. Patient investors can nibble on IDCC shares at current levels -- I see solid long-term reward vs. modest downside risk given the current valuation.

No positions.