We Still Like Qualcomm's Long-Term Story
by Brian Colello | 21 Apr 10
torontostar.morningstar.ca
Qualcomm QCOM reported fiscal second-quarter results and provided third-quarter and full-year outlooks that were in line with our expectations, and we are maintaining our fair value estimate for the firm. Qualcomm?s revenue for the quarter was $2.66 billion, just ahead of the firm?s revised guidance announced in March. Sales at these levels were flat sequentially but up 8% from the year-ago quarter. Qualcomm also generated healthy profitability yet again, earning a 29% operating margin this quarter.
Semiconductor sales were $1.5 billion, down 4% sequentially due to weak pricing, as Qualcomm faced increasing competition being a chip supplier to handsets sold in emerging markets. The company should continue to see pricing pressure in its chip business in the near term, but higher unit sales should help to offset some of this decline. Meanwhile, revenue from the company's crown jewel licensing business was up 6% sequentially, due to higher 3G handset sales as a proportion of the total industry. We think the most important long-term growth driver for Qualcomm is the industry shift toward 3G handsets and networks, and we don't see this shift stopping any time soon. More importantly, handset pricing saw a modest sequential decline but didn't encounter a sharp drop similar to the 6% decline seen in the December quarter. The company expects handset pricing to remain fairly flat for the rest of the fiscal year, which is consistent with relatively stable pricing patterns announced by Apple AAPL , Research in Motion RIMM , and others.
For the June quarter, Qualcomm expects revenue in the range of $2.5 billion to $2.7 billion. At the midpoint, the outlook would represent a 2% sequential revenue decline. The company also held its full-year revenue outlook steady at $10.4 billion to $11.0 billion, and raised the midpoint of its EPS guidance. We're not particularly disappointed by the outlook, as Qualcomm's royalty revenue is reported on a one-quarter lag, meaning that June revenue will be derived from handset sales during the seasonally-weak March quarter. All in all, the decline in chip pricing is a bit concerning, but if the pricing pressure persists, we wouldn't be surprised to see Qualcomm streamline its operating expenses in order to maintain healthy operating income from this business. Meanwhile, we remain encouraged that the transition to 3G networks is well underway, which should spur healthy revenue growth and profitability for Qualcomm in the coming years. |
