Qualcomm tops profit estimates as others
falter
By Jennifer Davies
UNION-TRIBUNE STAFF WRITER
January 26, 2001
Providing a beacon of light in the increasingly cloudy wireless sector,
Qualcomm yesterday beat Wall Street's earnings estimates by a penny even
as its revenues declined by 10 percent.
Qualcomm posted pro forma first-quarter net income of $231.6 million, or 29
cents per share, compared with $209.6 million, or 27 cents a share, for the
same period a year ago.
Those numbers bested analyst-tracker First Call/Thomson Financial estimates
of 28 cents.
But while net income increased, Qualcomm's revenues declined due to lower
proceeds from foundering satellite company Globalstar and from a decrease
in shipments for its Omnitracs unit.
For the quarter ended Dec. 31, pro forma revenues were $684 million,
compared with $764 million for the same period last year. Pro forma refers to
profits before one-time charges such as acquisitions and debt write-offs.
Despite declining revenues, Qualcomm executives said they were comfortable
with analyst estimates of $1.27 per share for the 2001 fiscal year, as well as
pro forma earnings of 29 cents per share for the second quarter.
In addition, Qualcomm predicted that its technology, code division multiple
access -- known as CDMA -- would continue its ascent in the wireless
world.
The San Diego-based company predicted 90 million CDMA phones would
be sold this year but the average sale price for those phones would decrease
by about 20 percent.
Analysts also expressed confidence in the wireless giant's prospects,
repeatedly congratulating Qualcomm executives during its conference call.
Greg Teets, an analyst who covers Qualcomm for A.G. Edwards, said the
news from Qualcomm was positive.
"They did look good. The numbers were in line with what people thought they
would be," Teets said. "Nothing really concerned me. They stuck with
previous estimates. Chip shipments will be up, and they have record orders
and record backlogs."
Qualcomm's relatively robust earnings are in direct contrast to much of the
wireless sector. Other wireless giants, such as Motorola and Ericsson, have
both given signs of slowdowns.
Mark Roberts, an analyst for First Union Capital Markets, said it was
impressive that Qualcomm was able to buck the sector-wide trend by
showing an increase in a demand for its chip sets.
"I was very pleasantly surprised," Roberts said.
But like all silver linings, there are clouds. Irwin Jacobs, Qualcomm's chairman
and CEO, acknowledged as much in the conference call.
"As usual, there are some positives and there are some negatives," Jacobs
said.
In particular, the company's investment in the struggling Globalstar continued
to rain on Qualcomm's parade. In its earnings report, the company announced
a $595 million write-down of its Globalstar investment.
The news on Globalstar was predictable. Globalstar announced on Jan. 16 it
was indefinitely suspending its debt payments so that it could conserve cash
and continue operations.
The upshot for Qualcomm was that Globalstar defaulted on $22 million
payment on Jan. 15. Because of Globalstar's continuing woes, Qualcomm
stated it expected its revenues from the satellite company would be
significantly lower. Roberts estimated that after a deduction for taxes,
Qualcomm's write-down was about 50 cents per share.
Qualcomm still has approximately $56 million in net assets tied up in
Globalstar's business.
In addition, Qualcomm said it might scrap plans for an initial public offering of
its semiconductor business, temporarily titled Spinco, because of uncertain
market conditions. Regardless of its decision on the IPO, Qualcomm said it
still plans to spin off the semiconductor division by fall.
Teets said even if Qualcomm chooses to voluntarily derail the Spinco IPO,
the move would hardly be catastrophic for a company that reported more
than $2.4 billion in cash equivalents and market securities.
"You'd kind of like to see an IPO so it can raise some extra money," Teets
said. "But Qualcomm has plenty of cash so it's hardly the end of the world."
Qualcomm stock fell 31 cents to $73.94 in Nasdaq trading yesterday before
the announcement. The stock has fallen about 57 percent from its peak of
$162.56 in April 2000. Qualcomm jumped to $74.63 in after-hours trading.
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