Qualcomm Preview (QCOM) 63 7/16 +2: In spite of this morning's gain, investors have not been kind to Qualcomm
going into its earnings announcement after the close today as the stock was as high as 76 last Friday. (see 10-day chart)
Most of the selling was related to Loral's decision to essentially pull the plug on Globalstar (GSTRF), the global mobile
satellite telephone company of which Loral, Qualcomm (owns 9.5%) are major backers of the project. It looks as though
Globalstar will go belly up as the cost and bulkiness of the phones are too high in an environment of declining prices for
wireless service. The problem with GSTRF for QCOM is two-fold: the venture itself may fold which will cause QCOM to
write-down the venture even further and Qualcomm will lose sales as it was contracted to sell phones to the venture. The
company is expected to give further details on its conference call today at 5:30 ET....So, what's important from the release
and call today? First, forward guidance is key. Details on the Korean market is important as chipset sales in Korea have
been weak as the country has suspended subsidies. Analysts are expecting a 20% decline in overall chipset sales mainly due
to weakness in Korea. Second, details on China: we expect opening comments on getting into China to be positive in light of
the recent news that China Unicom will build a CDMA network. However, we'll be listening to the Q&A session for firm
evidence as to when and what can be expected from the deal. Third, there has been some talk of weakening royalty rates
for the company, however, the company has announced a number of licensing deals in the quarter....We believe in the
company in the long term, however, we feel uncomfortable holding the stock going into the earnings announcement as there is a real risk for downward revisions going forward due to weakness in Korea and Globalstar....As a side note, Qualcomm announced today that it will delay the spin-off of its Spinco semiconductor unit until January at the earliest citing unfavorable market conditions. -- Robert J. Reid, Briefing.com
Firm
EPS
Sales (mln)
Merrill Lynch
$0.24
$675
Wit Soundview
$0.26
$728
Consensus
$0.24
$700 |
