re: SoundView Checks In on FYQ3
Despite the fact that overall Qualcomm reported better results than Matt Hoffman predicted in his July 24 June Quarter Preview in which he lowered his QCOM price target, he continues to have a "Neutral" rating on Qualcomm and is "skeptical" about markets capability to absorb the 1x chips QCOM plans to ship and he noted that "the primary negative in the report was cash flow, which was only $30 million in the quarter despite the strong earnings". However he did note positively that "the weak cash flow was primarily due to significant investments in market expansion".
He projects 77 million cdma handset sell-in this year but I'm not sure whether or not he has lowered hid 421 million total unit forecast this year. I suspect he might have or will be doing so. Hoffma, btw, has 2 wireless favorites in Motorola and Openwave and OPWV has been decimated in the last 3 weeks.
Excerpts below with a link to both the preview and review:
>> QCOM:3QF02 - Strong Results,What Next?
Matt Hoffman
Jennifer Baxter
July 26, 2002
research.soundview.com
Stock Net: QCOM reported 3QF02 results ahead of consensus expectations. We think numbers will generally go up across the Street, but we maintain a healthy level of skepticism about the ability of the end markets to absorb all of the 1X chips QCOM is producing for 2HC02. We remain neutral on the shares with the stock at the low end of our mid-$20s to low-$30s trading range.
Industry Opinion: We believe the 2002 CDMA handset market will be up slightly in 2002 to 77M units as 1X packet data technology, color screens, and new applications emerge late in the year domestically. Korea and Japan remain key leading-edge markets.
• Qualcomm reported 3QF02 results ahead of consensus expectations with pro-forma revenue of $721 million and EPS of $0.24. Results were driven by strength in 1X in South Korea and Japan.
• Chipset shipments were in-line with the company’s June preannouncement at 16 million, including 11 million 1XRTT chips shipped.
• The primary negative in the report was cash flow, which was only $30 million in the quarter despite the strong earnings. The weak cash flow was primarily due to significant investments in market expansion.
• We are raising numbers slightly for the September quarter to get to the low end of chipset guidance for September, but remain highly skeptical about the ability of the end markets to absorb all of the 1X chips QCOM is producing for 2HC02.
<snip>
CDMA Handsets:
Qualcomm reiterated its calendar 2002 CDMA handset forecast of 80-85 million. Our forecast remains 77 million. We count about 13 million 1X subscribers to date, with another 3 million having 1X handsets but not yet activated on 1X networks. We are modeling handset ASPs down 3% sequentially.
<snip>
Guidance and Estimate Changes:
Qualcomm has essentially raised guidance in some areas for next quarter. We have raised our chipset forecast slightly for the September quarter, increasing our revenue estimate to $753 million from $727 million. Our EPS estimate goes to $0.25 from $0.24. We think numbers will generally go up across the Street after the report, but we are going to maintain a healthy level of skepticism about the ability of the end markets to absorb all of the 1X chips Qualcomm is producing in 2HC02. We remain at a Neutral on the shares with the stock at the low end of our mid-$20s to low-$30s trading range.
Qualcomm Guidance vs. SoundView Estimates vs. First Call
New Old
QCOM QCOM Consensus SNDV
FY02 EPS $.93-$.94 $.90-$.95 $.89 $.92
FY02 Rev Growth 7-8% 4-8% 4.5% 5.5%
CDMA Handsets 80-85m 80-85m
Handset ASPs Down 5-10% Down 5-10%
Price Target Valuation and Risks:
Based on our belief that there remains some risk to 2H02 and F03 estimates, we believe the stock will be range-bound (mid-20s to low 30s) until the 1X launch in the United States demonstrates momentum. We do not think that will happen for at least another quarter. Our price target of $34 is based on our sum-of-the-parts valuation, and was recently lowered from $38 due to the impact of the recent price decline of comparable fabless semiconductor companies.
Sum-of-the-Parts Valuation & Price Target
YE02 $m YE02 $/Share
QTL Royalties $17,596 $22
QCT Chipsets $9,950 $12
QIS wireless Services $412 $1
Sum of Parts $27,985 $34
Debt $0 $0
------------------------------------
Valuation target $27,985 $34
Risks include:
1) Slower than anticipated CDMA handset sales.
2) Additional delays in W-CDMA rollouts.
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- Eric - |
