QCOM Q4FY06 - earnings preview ramblings-
After sifting thru Slacker provided (thanks again) industry reports and reading (scanning) several CC transcripts, I previously posted some initial thoughts that this quarter could be a defining moment for Qualcomm as it begins its break-away from the traditional incumbent mobile wireless majors.
Several major themes bring me to this conclusion-
MSM growth >>>>>>>>>>
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1. The Q began its robust R&D investment initiative three years ago by tripling new MSM development, increasing from an average of three new MSMs per year to an average of nine per year over the past two years.
2. Dr Jha’s recent presentation suggests that the fruits of those investments are now being harvested, as eight of those new MSMs are in production or will be before year end 2006.
+ QSC6010 ( Single chip CDMA solution)- Oct / Nov 1st devices incorporating such will hit the market providing even lower-cost handsets to India / China. Motorola has announced device(s).
+ MSM6500/ MSM6550 (EV-DO)- models launched 170 and 50 respectively
+ MSM6800 ( EV-DOrA) - 1st production devices scheduled before 2006 YE
+ MSM6275 (HSDPA)- Samsung devices launched – Cingular.
+ MSM6280 ( HSDPA)- 1st handset devices to be launched in Nov, 2006
+ MSM6245 / MSM6255A (WEDGE)- to provide much lower cost handsets (20% above GSM) for delivery in Feb – April 2007 timeframe.
3. Motorola is even perhaps cozying up to Sanjay’s MSMs with this unsolicited praise in MOTs last CC >>>>>>
“ CDMA was a business that wasn't as profitable. However, that team has worked unbelievably well, and has partnered unbelievably well with QUALCOMM to make that a nicely profitable business.
WCDMA handset growth >>>>>>>>
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1. The recent NOK presentation suggests that WCDMA handset sales are beginning to ramp with sequential quarterly sales gains in the 20%+ range.
WCDMA-
Units M QoQ % inc
Q1 Act 19
Q2 22 16%
Q3 27 23%
Q4 Est 34 25% conservative est, 39 more realistic??
CY2006 102
CY2005 50
.YoY inc 104%
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2. VOD is strikingly bullish on WCDMA >>>
The press release from Vodafone detailing their Christmas handset lineup.
vodafone.com
- Six total HSDPA handsets of which 3 are from Samsung and 3 are from Motorola.
- Qualcomm is likely inside nine of the 24 3G handsets....6 Samsung, 2 LG and 1 Huawei. Per Slacker
- A 3G version of the LG Chocolate is among the non-exclusive handsets that Vodafone is planning to launch.
<<<<<<<<<<<<<<<<<<<<
By Christmas>>>>>
VOD new handsets...........31
3G Capable.......................24 Percent of total 77%
HSDPA Capable...............06 Percent of total 19%
Vodafone 710 free with contract / £80 for pre-paid users .
3. VOD- Spain / Italy Investors day stated - - 50% of handsets sold are now 3G
4. Anadigics - Bullish WCDMA Snip >>>>>>>
- Anadigics stated that WEDGE shipments were up 64% sequentially
5. Japan number portability impact beginning in October –
6. India growth continues w/ low cost handsets
7. China with volume buying / SKT investment and support / low cost handsets
Pulling it all together I come up with these numbers >>>>>>>
Handset Shipments- estimating rationale-
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Handset sales for 4QFY06 (June quarter shipments) reflect 69 M units, within the Q’s guidance range of 67 -70M with this quarter’s growth tempered by “lighter than expected” WCDMA sales in Europe. It appears that some carriers may have reduced subsidies (impacting sales) during the summer months while awaiting lower cost handsets enabled with Q’s MSMs scheduled for 4QCY06. WCDMA handset sales for the December quarter should accelerate due to pent-up consumer demand for moderately priced units, and the carrier’s desire to exploit WCDMA’s improved network capacity advantage using less subsidized devices. My model reflects WCDMA ASPs declining to $296 in 4QCY06, from $342 in Dec ‘05 and $412 in June ’05.
I’m estimating CY06 CDMA/WCDMA handset sales at 306M units, significantly above the Q’s current guidance of 290M (MP) units. At first glance this appears overly optimistic, however it ties closely to YoY percentage increases of about 45% on a quarterly basis throughout the year. CY06 reflects a healthy jump in Q4CY06 sales to 96M units, seemingly high but again reflective of typical holiday seasonal sales QoQ gains with ’06 at 28% in line with the past two years.
CY WCDMA sales reflect 107M units, above the Q’s guidance of 100M units. Again, the YoY percent increase of 114% mirrors the YoY gains on a quarterly basis throughout the year.
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HANDSET Shipments History
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Total
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JFM AMJ JAS OND CY TOT Q Guide
2004 38 40 40 52 170
QoQ% 30%
2005 43 48 52 67 210
QoQ% 29%
2006 66 69JE 75JE 96JE 306 290MP
QoQ% 28%
YOY% 53% 44% 44% 43% 46%
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WCDMA
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2005 08 10 13 19 50
QoQ% 86%
2006 19 22 27 39JE 107 100MP
QoQ% 44%
YOY% 137% 120% 107% 105% 114%.
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MSM Sales- estimating rationale
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My model is constructed to reflect MSM shipments leading handset sales by one quarter, which may undestate the lead time somewhat. The model also breaks out WCDMA, CDMA, and modules for notebooks / OnStar, etc., and reflects market share metrics for the above based upon the following quarter’s handset sales. With the pending on-slot of Q MSM enabled WCDMA handsets for 4Q06, I’ve ramped the WCDMA market share to the mid 30% range.
Q4FY06 MSMs are estimated at 59M units, above the Q’s guidance of 53 -56M. On a YoY basis, Q4 is up 47% vs Q3 at 53%.
MSM Shipments History
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JFM AMJ JAS OND
2004 32 35 39 39
QoQ% 0%
2005 37 36 40 47
QoQ% 18%
2006 49 55 59 73
QoQ% 24%
YOY% 32% 53% 47% 55%
Guidance Summary below-
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As I’ve stated before, the Q should be able to handily beat their Q4 / FY06 EPS and the consensus guidance as self defeating (unfortunately) mid-quarter updates were not provided this quarter. My 4QFY06 EPS estimate is $0.45, against the Q’s guidance of $0.40MP, and the consensus of $0.41.
With respect to 1QFY07, my estimate is $0.54 vs consensus at $0.44. This appears overly optimistic reflecting a YoY increase of 38%. However, it appears achievable when compared to YoY increases (my estimates) in handset shipments (44%) and MSM sales (55%).
My current FY07 EPS estimate (needs updating) is around $2.18. With the mid-point consensus at $1.82, the Q should also be able to handily exceed that figure with a conservative $1.90- $1.95 range and still allow for upward guidance as the year progresses and WCDMA sales ramp with ever lower prices enabled by the Q’s handset partners using the Q’s MSMs.
As has been suggested, the Q may provide supplemental guidance in the event that the NOK license agreement is not resolved by April 07. In that event, only one quarter of NOK’s royalty revenue would be impaired which some have estimated to reduce EPS by about $0.05.
FY06 4QFY06
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Q / Cons Jim Actual
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MSMs 53- 56M 59
H/S Ship'd(Jun) 67- 70M 69
H/S ASP (Jun) $215 $215
EPS- Pro Forma $0.39-0.41 $0.45
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..Consensus-avg $0.41
high $0.44
low $0.40
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EPS FY06-PF $1.62MP $1.67
..Consensus-avg $1.63
high $1.64
low $1.62
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FY07
EPS History
.1Q06 $0.39
.2Q06 0.41
.3Q06 0.42
.4Q06 $0.40MP $0.45
1Q07
. $x.xx $0.54 YoY 38%
..Consensus-avg $0.44
high $0.51
low $0.41
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EPS FY07-PF $2.18
..Consensus-avg $1.82
high $2.02
low $1.33
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