No surprises from WR Hambrecht....
wrhambrecht.com
QCOM: PRE-ANNOUNCES STRONG FQ4:02 CHIPSET SHIPMENTS;
EXPECTS SEQUENTIAL GROWTH TO CONTINUE INTO FQ1:03
• Yesterday, after the close, QUALCOMM pre-announced strong FQ4:02 (September)
chipset shipments. The company expects to ship 20 million CDMA MSM chipsets (including
15 million 1X chipsets), above previous guidance of 18-19 million and our 18.5 million
estimate. We note that 20 million represents a 25% sequential increase and 54% y/y increase.
As reasons for the strength, QUALCOMM cited robust demand for 1X chipsets and increasing
demand for chipsets headed to China.
• We attribute the strong chipset shipments to the following: 1) handset vendors and
carriers are building inventories of 1X handsets with color screens in preparation for holiday
related sales in the U.S.; 2) China Unicom is experiencing accelerating CDMA subscriber
additions, which is expanding the overall CDMA handset market (we now believe 82-83 million
CDMA handset shipments are achievable in CY2002, up from 78-79 million); 3) continued
robust 1X handset sales in S. Korea and Japan; and 4) increased CDMA chipset market share
at Motorola, which used its own 2G chipsets but is now using 1X chipsets from QUALCOMM.
• In addition, the company expects shipments in FQ1:03 (December) “significantly higher
than 20 million” based on orders already received. We are surprised by the guidance for a
sequential increase in FQ1:03, as we had been concerned that both slowing subscriber growth
in the U.S. market and our view that 1X will have minimal impact on the U.S. handset
replacement market would make FQ1:03 a difficult quarter, particularly given such strong
shipments in FQ4:02. While we believe the jury is still out on the U.S. market (which accounts
for 40%+ of CDMA handset sales), it appears that any potential negative impact is unlikely
until FQ2:03 (March).
• As a result of the strong chipset results, we are raising our estimates. For FQ4:02:
revenue to $827 million from $781 million and EPS to $0.27 from to $0.26. For 2003: revenue
to $3.29 billion from $3.15 billion and EPS to $1.08 from $1.03.
• We maintain our Hold rating. Despite exceptionally strong near-term momentum in the
chipset business, we still have lingering concerns regarding slowing growth in the key U.S.
market, as well as the potential impact of Samsung’s development of its own 1X chipset.
Moreover, we believe the stock is near fair value at current levels—the last trade in the after
hours market was $27.80, which equates to 25.7x our 2003 EPS estimate and a 1.8x PEG
ratio. We note that is above the blended average PE (21.8x) and PEG ratio (1.5x) for Microsoft
and Intel, which we believe are appropriate comparables given QUALCOMM’s IP
royalty/chipset business mix. Using a 2.0x PEG ratio, we arrive at a $30 price target, up from
our previous target of $25. |
