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Qualcomm Tops, Outlook Robust - Analyst Blog

Posted
11/8/2012 10:00:00 AM
By: Zacks.com
Referenced Stocks:AAPL;GOOG;MSFT;QCOM

Based on significant surge in demand for the high-end 3G smartphones and tablets, Qualcomm Inc. ( QCOM ) reported solid financial results for the fourth quarter of fiscal 2012, easily beating the Zacks Consensus Estimates. Moreover, management provided a robust outlook for fiscal 2013 primarily due to growing demand for smartphones and tablets, rapid transition from 2G to 3G in China and India, and increasing licensing revenue.  As a result, in the after market trade on NASDAQ, stock price of Qualcomm was up $4.54 (7.81%) to $62.66.

Revenue

Quarterly total revenue of $4,871 million was up 18.3% year over year, surpassing the Zacks Consensus Estimate of $4,673 million. Segment wise, Qualcomm CDMA Technologies businesses accounted for $3,129 million of revenue in the fourth quarter, up 21% over the prior-year quarter. Quarterly EBT margin was 16%. Qualcomm Technology Licensing generated $1,572 million, up 16% year over year. Quarterly EBT margin was 87%. Qualcomm Wireless & Internet segment generated $161 million, down 1% year over year. This division incurred $1 million of operating losses.

Net Income

On a GAAP basis, quarterly net income from continuing operations was $1,240 million or 72 cents per share compared with a net income of $1,055 million or 62 cents per share in the year-ago quarter. However, the fourth quarter of fiscal 2012 adjusted (excluding special items) earnings per share came in at 76 cents, easily beating the Zacks Consensus Estimate of 70 cents.

Chipset Statistics

During the fourth quarter of fiscal 2012, Qualcomm shipped approximately 141 million CDMA-based MSM chipsets, up 11% year over year. This figure was also better than the company's guidance of a mid-point of 138 million. Average selling price of mobile handset with an in-build Qualcomm chipset during this quarter was around $216 -$222.

Operating Metrics

Quarterly operating income was $1,235 million compared with an operating income of $1,238 million in the year-ago quarter. Gross margin was 62.2% compared with 63.6% in the year-ago quarter. Quarterly operating margin was 25.4% compared with 30.1% in the prior-year quarter. In the reported quarter, the company returned $426 million (25 cents per share) to its shareholders in the form of cash dividends and repurchased 15.3 million shares of its common stock for a total consideration of $841 million.

Cash Flow

During the fourth quarter of fiscal 2012, Qualcomm generated $1,409 million of cash from operations compared with $1,820 million in the prior-year quarter. Free cash flow (cash flow from operations less capital expenditures) during the reported quarter was $1,159 million compared with $1,626 million in the year-ago quarter.

Liquidity

At the end of fiscal 2012, the company had $26,837 million of cash and marketable securities and no outstanding debt on its balance sheet compared with $20,913 million of cash and marketable securities and $994 million of outstanding debt at the end of fiscal 2011.

First Quarter of Fiscal 2013 Financial Guidance

The first-quarter revenue will be within the range of $5.6 billion - $6.1 billion. Non-GAAP earnings per share will be within the range of $1.08 - $1.16. GAAP earnings per share will be within the range of 90 cents - 98 cents. Qualcomm is expected to ship 168 million - 178 million MSM chipsets during the first quarter of fiscal 2013.

Full Fiscal 2013 Financial Guidance

Fiscal 2013 revenue will be within the range of $23 billion - $24 billion. Non-GAAP earnings per share will be within the range of $4.12 - $4.32. GAAP earnings per share will be within the range of $3.40 - $3.60. ASP of mobile handset with an in-build Qualcomm chipset during fiscal 2013 will be around $214 -$226.

Recommendation

Qualcomm remains confident that it will be able to retain its current pace of revenue and earnings growth for at least next five years. There are primarily three reasons for this positive outlook: (1) gradual introduction of 4G LTE enabled mobile handsets in the developed markets of the U.S., Japan, and South Korea (2) massive growth of 3G smartphones in the emerging markets, particularly in China, where the company has strong foothold (3) Qualcomm's growing association with Apple Inc. ( AAPL ) for its iPhones and iPADs and the upcoming Windows 8 based-PC operating systems from Microsoft Corp. ( MSFT ) and Samsung for their Google Inc. ( GOOG ) developed Android-based smartphones and tablets.

We therefore, reaffirm our long-term Neutral recommendation on Qualcomm. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.



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