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Qualcomm Shows Strength in Weak Market

 November 08, 2012 02:24 PM

(By Mani) Qualcomm Inc.'s (NASDAQ:QCOM) better than expected results and outlook were driven by a favorable mix of high-end 3G/4G LTE mobile station modem (MSM) chipset sales and licensing revenues.

As a result, shares of Qualcomm withstood the overall sluggishness in the market by advancing 8 percent to touch the day's high of $62.80. They have been trading between $51.60 and $68.87 during the past 52-weeks.

San Diego, California-based Qualcomm makes CDMA chips that power the leading smartphones and tablets, and is benefiting from strong smartphone demand across a wide range of its customers, including Apple and Samsung.

[Related -QUALCOMM, Inc. (NASDAQ:QCOM): Becoming A Core Holding?]

Smartphone content is tilting towards multi-mode 3G/LTE and integrated chipsets, which is improving ASPs. Qualcomm's content is designed in most major smartphones, also driving incremental unit shipment growth.

Qualcomm's Snapdragon S4 chip is designed in various smartphones such as the Samsung Galaxy SIII, Nokia Lumia phones, HTC 8x and the Moto Razr M, among others while the quad-core Snapdragon S4 Pro is being adopted for the Nexus 4, Optimus G and Xiaomi Mi2 and continues to see strong design traction.

There are more than 420 announced Snapdragon based devices and more than 400 more in design. Current OEM demand remains strong, particularly for high-end performance and multi-mode LTE capabilities. Windows 8 remains a significant opportunity for Qualcomm helping to expand Qualcomm's addressable market.

[Related -QUALCOMM, Inc. (QCOM): Did Goldman Lowball With $80 Price-Target?]

"Qualcomm is winning footprint with Apple and Samsung while also increasingly getting designed into device makers working hard to make a comeback such as Nokia, HTC, Motorola, etc," RBC Capital Markets analyst Mark Sue wrote in a note to clients.

The company reported fourth-quarter net income of $1.27 billion or 73 cents per share, compared with $1.06 billion or 62 cents per share last year. Excluding items, it earned 89 cents per share, higher than Street view of 82 cents per share.

Qualcomm, which shipped 141 million MSM units in the September quarter, posted quarterly revenues of $4.87 billion, compared with $4.12 billion last year, while analysts had a consensus revenue estimate of $4.67 billion for the quarter.

For the first quarter of fiscal year 2013, Qualcomm expects net earnings of 90 to 98 cents per share and adjusted earnings of $1.08 to $1.16 per share. Revenues are expected in the range of $5.6 billion to $6.1 billion. Analysts currently estimate earnings of $1.00 per share on revenues of $5.30 billion for the first quarter. The company expects to ship 168 million to 178 million MSM chips during the first quarter.

"We are now expecting Qualcomm to ship 177 million MSM chipsets in the December quarter versus our prior 173 million estimate, an increase of 14 percent year-over-year and up 26 percent quarter-over-quarter," Sue noted.

In addition to demand from new smartphone launches, Qualcomm expects channel inventory for 3G/4G LTE MSM chipsets to increase in the December quarter as the company continues to fulfill pent up demand from supply shortages earlier in the year. Qualcomm is ramping 28nm supply at three additional fabs to supplement its current supply from TSMC.

"While the 28nm supply is improving, supply still remains constrained and MSM shipments may potentially be higher than our 177M estimate if yields improve." Sue said.

For the fiscal year 2013, Qualcomm expects net earnings of $3.40 to $3.60 per share and adjusted earnings of $4.12 to $4.32 per share. Revenues are estimated between $23 billion and $24 billion. Analysts currently expect Qualcomm to earn $4.13 per share on revenues of $21.69 billion for the full year.

Apart from Apple, Samsung and Nokia, next year may bring incremental tablets, Windows RT devices and further growth in emerging markets, all diversified avenues of growth.

"ASP concerns will always be part of the Qualcomm story, but the mix towards smartphones is strong, mobile device unit growth is healthy, and strong design wins may further help QCT OMs of 16 percent to improve," Sue added.


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