Alex Cena's QCOM earnings preview>
INDU: Earnings Preview: December Results Seasonally Strongest
Qualcomm Inc(QCOM)*
Rating: 1H
19980915
Salomon Smith Barney ~ January 24, 2000
--SUMMARY:----Telecommunications Equipment
* We expect the companies left to report should be at or slightly above
expecations.
* Specifically, AirNet, Cisco Systems, Nokia, Nortel, Qualcomm and Tellabs
will be reporting over the next few weeks and should report solid
financial results.
* Ericsson, while on target with its prior guidance, it will likely be at
the lower end of the range.
* The fundamentals for the industry remains very positive and the outlook
bright despite the misstep at Lucent, which is company specific.
* Business conditions remain very healthy.
--OPINION:------------------------------------------------------------------
The remaining telecommunication equipment companies in our coverage
universe will be reporting their December quarter results over the next
month, so this is an opportune time to preview our expectations relative
to consensus. We believe most of the companies including Cisco Systems,
Nokia, Nortel, QUALCOMM, and Tellabs to be at or above expectations as
December is typically the strongest quarter for seasonal reasons.
Ericsson should be within its prior guidance though at the lower end.
Thus, we do not expect major surprises from the aforementioned
companies. While there may be a tendency to sell on the news, we would
continue to build positions in these stocks due to the positive
fundamental outlook for the sector. In fact, we believe 2000 can be as
good if not better than 1999 driven by: 1) an insatibale demand for
bandwidth on wireless networks due to voice traffic and soon data as well
and wireline networks due to an acceleration in the growth of data
traffic; 2) increased competition amongst operators around the world
forcing them to contnue to spend to defend market share in some cases in
order to gain market share; and the migration to new technologies whether
its circuit to packet; electrical to optical; or 2G to 3G wireless netw
orks.
TELLABS (1M) - RESULTS DUE JANUARY 25, BEFORE OPEN
* EPS should be $0.42 up from $0.31 last year; Consensus is $0.40
* Revenue should be close to $675 million vs. $521 million last year.
* Strength driven by sales of the Titan 5500 to new carriers as well as
U.S.-based
carriers under pressure from increased bandwidth demand.
* Martiss DXX sales estimated to be up 39% YOY driven by strong backlog
and orders
during third quarter.
* Gross and operating margin estimates are 62.2% and 36.0%, respectively.
* Focus remains on outlook for the Titan 5500 in 2000 and a progress
report on the
mid-summer commercial launch of the Titan 6500
We estimate that fourth quarter 1999 EPS should be $0.42, up 35% from
$0.31 a year ago. This compares to consensus of $0.40. Revenue, in our
opinion, should be about $675 million, up 29% from $521 million a year
ago. We believe that Martis revenues will increase 39% driven by strong
backlog and orders during the third quarter while TITAN business should
increase 42%. Our gross margin estimate is for 62.2% vs. 59.8% a year
ago, while operating margin is expected to be 36.0% vs. 34.0% a year ago.
NORTEL NETWORKS (2M) - RESULTS DUE JANUARY 25, AFTER THE CLOSE
* EPS should be $0.42 vs $0.33 a year ago on US GAAP basis; Canadian GAAP
EPS should
be $0.45 vs $0.36. US GAAP consensus in $0.41 & CAN GAAP consensus in
$0.46.
* Revenue should be $6.7 billion (CAN $7.1 billion), driven by continued
strong
results in the Public Carrier Networks, and offset in part by continued
weakness in
the Enterprise.
* Gross and operating margin should be 44.0% (CAN 43.9%) and 14.1% (CAN
13.6%).
* Nortel, we believe, is among one of the top beneficiaries of migration
to
next-generation networks by service providers.
* On the margin, fundamentals continue to improve. In the last several
quarters,
broadband transmission was the primary contributor to growth. Now, the
wireless
operations are contributing to growth as well.
Revenue, in our opinion, should be $6.7 billion (CAN $7.1 billion),
compared with $5.5 billion (CAN $5.8 billion) reported a year ago. We
believe Nortel's EPS (excluding acquisition-related charges) for the
quarter should be US GAAP $0.42, which compares with $0.33 in the fourth
quarter of 1998. US GAAP gross and operating margin should be 44.0% and
14.1%, respectively, compared with 44.5% and 13.3%, respectively, last
year. Canadian GAAP gross and operating margin should be 43.9% and
13.6%, respectively, compared with 43.8% and 14.4%, respectively, last
year.
QUALCOMM (1H) - RESULTS DUE JANUARY 25, AFTER THE CLOSE
* EPS should approach $0.24, vs. consensus of $0.24
* Sales of CDMA ASICs (+92% YOY) and mobile phones (+5% YOY) should be
robust.
* Revenue, excluding royalties, should be up 25% YOY to $1.2 billion.
* Royalties should be up 182% to $125 million vs. $44.4 million last year.
* We estimate gross and operating margins for the fiscal first quarter
of 2000 of 41.5% and 23.9%, respectively.
We believe Qualcomm's EPS for the fiscal first quarter of 2000 should be
close to $0.24 due to continued strength in ASIC chipset sales and
royalty fees driven by the rapid growth of its CDMA technology throughout
the world and in Japan, the United States, and Brazil in particular.
Mobile phone sales are likely to be on target, despite strong demand, due
to Qualcomm's inability to get additional components due to shortages.
However, this should no longer be an issue after the March quarter since
Qualcomm already has reached an agreement to sell the business to
Kyocera. We estimate that fiscal first quarter 2000 EPS should be $0.24
vs. $0.08 reported last year, and compared to consensus of $0.24.
Revenue, excluding licensing and royalty fees, in our opinion, should
increase 25% to about $1.2 billion from $941 million a year ago.
Licensing and royalty fees, which represent pure profits, are estimated
at $125 million for the quarter vs. $44.4 million a year ago. Licensing
and development fees now reflect the ongoing growth in royalties from the
CDMA marketplace, as opposed to last year, when this line item not only
included royalties from manufacturers, but also one-time payments from
manufacturers interested in entering the CDMA market. Qualcomm has now
licensed virtually every manufacturer, including all the major vendors
such as Ericsson, Lucent Technologies, Motorola, and Nokia. Thus,
licensing and development fees now largely reflect royalties received
from manufacturers of CDMA infrastructure and cell phones. Gross and
operating margin for the quarter should be 41.5% and 23.9%, respectively,
vs. 31.7% and 8.3% a year ago.
Qualcomm conitinues to be the best way to play the growth in the wireless
industry and CDMA in particular, the issues for the stock going forward
will be the source of catalysts such as those in 1999 that will propel
the stock upward.
ERICSSON (1M) - RESULTS DUE JANUARY 28, BEFORE OPEN IN NEW YORK
* We est EPS of SKr 2.90 ($0.35) vs SKr 2.41 ($0.30) a yr ago & US
consensus of $0.31.
* Revenues should be SKr 65.7 billion up 11% from SKr 59.0 billion
* Revenues driven by continued strength in sales of wireless
infrastructure combined
with the start albeit slow rebound in mobile phones from its new
phones, the A1018,
T-18 and T-28 introduced earlier in 1999.
* Gross and operating margin should be 45.6% and 12.9%, respectively.
* There unlikely will be any issues related to its wireless
infrastructure business.
* Focus will continue to be the exact timing of a rebound in its mobile
phone
operations that continues to be behind plan.
We estimate EPS to increase to SKr 2.90 ($0.35) from SKr 2.41 ($0.30) a
year ago which compares to US consensus of $0.31. We believe that
revenue in the quarter will be up 11% year over year and estimate revenue
for the fourth quarter of 1999 of SKr 65.7 billion, compared to SKr 59.0
billion last year. We estimate Network System & Service Operator revenues
will increase 16% YOY to SKr 49.0 billion while Consumer Product revenues
will decrease by 3% to SKr 12.2 billion. We estimate gross and operating
margin of 45.6% and 12.9%, respectively, compared to 42.3% and 10.1%,
respectively, last year.
NOKIA (1M) - RESULTS DUE February 1st, BEFORE THE OPEN IN NEW YORK
* EPS should be up at least 31% to Euro 0.65 ($0.67) vs. Euro 0.50
($0.58) last year.
This compares to consensus of $0.67.
* Euro estimates translate into $0.67, based on Euro 1.0=$1.04.
* Revenue should be up 38% to Euro 6.0 billion, driven by mobile phones
(+59%) and wireless infrastructure (+25%).
* Gross and operating margins should be 38.8% and 19.6%, respectively.
* An upside surprise likely to be driven more by a less than expected
decline in
operating margin as opposed to volume.
We estimate EPS should be at least Euro 0.65 per share, up 31% from Euro
0.50 last year. In U.S. dollars, earnings should be about $0.67, based
on Euro 1.0=$1.04, compared to $0.58 a year ago, based on Euro
1.0=$1.17. This compares to consensus of about $0.67 in the United
States. Revenue, in our opinion, should increase 38% to Euro 6.0 billion
from Euro 4.4 billion a year ago. Top-line growth should be driven by an
increase of about 25% YOY for wireless infrastructure, and more than 59%
YOY for mobile phones, which is an area where Nokia continues to gain
market share against its peers. Gross and operating margin should be
38.8% and 19.6%, respectively, compared to 37.0% and 19.5%, respectively,
a year ago.
CISCO SYSTEMS (1M) - RESULTS DUE FEBRUARY 8, AFTER THE CLOSE
* EPS should be $0.23 vs. $0.18 last year; consensus is $0.23
* Revenue should be up 41% to $4.0 billion.
* Strength from service providers and high-end enterprise customers.
* Gross and operating margin estimates of 64.5% and 27.1%, respectively.
* Cisco continues to make major inroads into carriers worldwide.
We believe Cisco will report a very good quarter driven by its
traditional market supplying data networking equipment to the enterprise
but also continued successful drive into the carrier market. In fact, we
feel Cisco's carrier business can continue to expand at more than
50%-60% per year. We estimate fiscal second quarter 2000 (January) EPS
should be $0.23, up 26% from $0.18 a year ago. This compares to
consensus of $0.23. Revenue, in our opinion, should be approximately
$4.0 billion, up 41% from $2.8 billion a year ago. Gross and operating
margins should be 64.5% and 27.1%, respectively, compared to 65.2% and
29.2%, respectively, a year ago.
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