) 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
), Broadcom (
) and Infineon (
). 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