Revising Qualcomm Forecasts Based on Better Royalty Rates


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Qualcomm ( QCOM ) recently announced its fiscal year Q2 2011 earnings, in which it exceeded expectations and revised its outlook for its royalty business. The company revised its outlook for 2011 royalty rates after reaching a resolution in its dispute with Panasonic, and revised its outlook for pricing on mobile phones that license Qualcomm's technology. Royalty rates, we should note, were highlighted as a key area to watch in our earnings preview (see Qualcomm Earnings Preview - What We're Watching ). Qualcomm competes with other chip makers like Texas Instruments ( TXN ), Broadcom ( BRCM ) and Infineon ( IFNNY ). As a result of these positive developments, we have updated our price estimate for Qualcomm stock from $53.82 to $57.23 . Our price estimate is in line with market price.

Improving Royalty Rates

We have revised our estimate for royalty rates for 2011 from around 3.45% to 3.50%. This is due to a favorable resolution in the dispute with Panosonic.

Here is what the company had to say about the revised outlook for royalty rate in 2011:

I think we've cautioned a bit about the reliance upon the implied rate, although we did talk a bit about it on the last call. The two data points, I think, we gave last call was with the resolution of the first licensee dispute, we expected the full year fiscal year to be in the range of 3.5%. And then we said exiting the year, we were expecting something in the range of 3.4% to 3.5%. And I think now with the resolution of Panasonic, we would expect the full year implied rate to be a bit higher than the 3.5%.

The company also provided a positive outlook for handset average selling prices (ASPs) for 2011, stemming from continued growth of smartphone and tablet sales.

Regarding the ASP outlook, management commented:

Going forward, we expect to continue to see strength in handset ASPs in developed and emerging regions, driven by growth in smartphones, including greater penetration into mid and lower tiers; a richer mix of devices in emerging regions such as China and India; and continued growth in tablet volumes. Accordingly.. we are raising our fiscal 2011 ASP estimate range from $190 to $200 to $199 to $209.

We have revised our 2011 estimate for ASPs from $195 to $205 given the change in management guidance.

See our full analysis for Qualcomm stock here

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
Referenced Stocks: BRCM , IFNNY , QCOM , TXN

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