Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Qualcomm-News Only -- Ignore unavailable to you. Want to Upgrade?

To: DaveMG who wrote (147)	7/20/1999 4:11:00 AM
From: EepOpp	Read Replies (1) \| Respond to of 426

Conference Call Summary - July 19, 1999 Message 10574131

To: DaveMG who wrote (147)	7/20/1999 11:41:00 AM
From: DaveMG	Read Replies (3) \| Respond to of 426

Here is the CSFB report: BUY LARGE CA $158.69 Qualcomm (QCOM) Qualcomm reports Q3:FY99 earnings - Restructuring benefits boost results Summary Qualcomm reports EPS of $0.75 beating the consensus of $0.63. Sales top $1.0 billion for the quarter. AM CALL: QCOM: Announces Q3:99 Earnings (PT 1 OF 2) FB Qualcomm reports EPS of $0.75 beating the consensus of $0.63. Sales top $1.0 billion for the quarter. Restructuring benefits boost results. The effects of the sale of the infrastructure division are felt immediately. Operating margins improve to 21.4% versus 12.4% prior quarter. Strong CDMA handset and chipset sales reported. Japan importing record quantities of chips and Qualcomm gains market in the United States. Upside constrained by component shortages. Raising our estimates for FY99E from $1.75 to $2.44, and FY00E from $2.50 to $3.75. We are maintaining our BUY recommendation. Price Target Mkt.Value 52-Week 7/19/991 (12mo.) Div. Yield (MM) Price Range 158.69 170 none None $29,815.2 $18.88-164.44 Annual Prev. Abs. Rel. EV/ EBITDA/ EPS EPS P/E P/E EBITDA Share 12/00E $3.50-$3.75 $2.50 NA NA 12/99E 2.44 $1.75 65.0 201% 12/98A 0.82 0.82 193.5 519% Dec. March June Sept. FY End 2000E Sept. 1999E 1998A ROIC (6/99) NA Total Debt (6/99) Book Value/Share (6/99) WACC (6/99) NA Debt/Total Capital (6/99) Common Shares (Mil) 187.883 EP Trend2 NA Est. 5-Yr EPS Growth 35% Est. 5-Yr. Div. Growth 1On DJIA closed at 11187.7 and S&P 500 at 1407.65. 2Economic profit trend. Qualcomm, the innovator of CDMA, manufactures handsets and licenses its patented technology to major wireless handset and infrastructure manufacturers. In addition, it designs and develops CDMA chipsets, email software, 2-way mobile satellite systems and supplies equipment to the Globalstar network. Investment Summary Qualcomm announced Q3:FY99 earnings yesterday after the close of the market. Earnings of $0.75 per share (excluding non-recurring charge) annihilated the consensus estimate of $0.63. Including the non-recurring charge, related to divestiture of the infrastructure division to Ericsson, earnings were $0. 35 per share. Qualcomm, reportedly, has become the number supplier of digital handsets in the United States. Qualcomm announced a record breaking quarter in terms of revenues topping the $1.0 billion mark for the first time. Revenues grew by 14.7% and 7.7% versus prior year and quarter. The growth in sales, albeit impressive, missed our estimate of $1.1 billion by 10%, primarily a result of constraints imposed by component shortages for handsets. The key drivers in sales continue to be the heavy demand for CDMA Asic's and handset sales in North America and Korea. Handset sales, and in particular the flagship ThinPhonetm, did exceptionally well. Although the ThinPhonetm represented only 20% of handset sales in Q3 the company believes the growth in the next quarter will be substantial enough that the ThinPhonetm may represent upwards of 50% of the total sales mix. With good ASPs, at roughly $200 per unit, we expect to see operating margins near the company's 10% target. A report released just last week by Dataquest indicated that Qualcomm has just recently become the number two supplier of digital handsets in the United States. The other significant contributing driver to revenues was the sales of ASIC's to CDMA handset manufacturers. Sales continued to be robust, especially in Japan with negligible degradation in ASP's cited. The company reported shipping approximately 11.0 million MSM chipsets this quarter up 22% sequentially from last quarters 9.0 million. Licensing and royalty fees were up sharply (21%) versus prior year, clearly representing a leading indicator of the growth of digital wireless services and subscribers. These revenues, which flow virtually unscathed to the bottom line of earnings, totaled $92.6 million exceeding our own expectations by 13% or $10.6 million. Sale of the infrastructure division to Ericsson drove up gross margins 6.9% in the period to 41.1% Gross margins improved substantially over prior quarter and most notably in the Communications Systems division. Driven by the Comm. Systems group overall gross margins improved to 41.1%, up from 28.6% prior year and 34.2% last quarter. The distinguishing difference for the company was clearly the negative impact on margins by the infrastructure division that was recently sold to Ericsson. Gross margins improved almost 7.0% sequentially versus Q2:99. Operating Margins improved to 21.6% versus 6.1% a year ago Operating expenses improved almost in all segments across the board. Most notably tied to the divestiture of the infrastructure division, was the decrease in R&D expenses. These costs were reduced by 5.9% versus prior quarter to $93. 8 million. This figure handedly undermined our estimate of $ 118.2 million Although, management has indicate that it does not expect R&D expenses to remain at these levels moving forward they also conceded that the hiring of qualified candidates is challenging and could delay hiring. Sale and marketing also exhibited a considerable decrease year over year, declining over 22%. We believe the difference is being felt in a reduction in direct handset sales force. Despite the decrease, we do not expect the trend to continue into Q4. Sales in the United State should pick up even further with the exit of Sony, as announced last month. This void represents an outstanding opportunity for Qualcomm to capture additional CDMA handset and digital phone market share. Reported component supply issues could limit near-term revenue growth The demand for digital wireless handsets has grown at a blistering pace. So much that management has indicated the very real possibility have components shortages in the near future. As addressed in the conference call, this issue does not appear to be one that will be alleviated before year-end. We believe that these issues are not tied to any one specific supplier nor Qualcomm product line. Motorola indicated the same issues although it was quick to identify the specific components impacted - displays and filters. Despite the constraints, Motorola was more optimistic forecasting a resolution by period end Q3. Although management was candid in the discussion of the issue we do not believe the constraints will yield a material impact for Qualcomm. Summary Qualcomm reported record sales in excess of $1.0 billion for Q3:FY99. In doing so the company also exceeded all expectations by reporting EPS of $0.75 (excluding non- recurring charges). Earnings exceeded the consensus of $0.63 as well as our own forecast. We believe this upside surprise was driven by a number factors including restructuring activities highlighted by the sale of the infrastructure division to Ericsson as well better than anticipated demand which is affirmed with a exclamation point - witness component supply issues. That being said we believe Qualcomm will maintain the improved margins moving forward. We which is affirmed with a exclamation point - witness component supply issues. That being said we believe Qualcomm will maintain the improved margins moving forward. We don't anticipate any greater than average degradation in ASP's of handsets moreover with the change in product mix moving to a greater composition of the better margin ThinPhonetm we are looking for handset operating margins to improve upwards towards 10%. Qualcomm is well positioned in one of the fastest growing segments of wireless telecommunications - CDMA. With costs under control we're looking for the prosperity to continue. We are raising our FY99E estimates from $1.75 to $2.44 and FY00E from $2.50 to $3.75. Reiterate our Buy recommendation. N.B.: CREDIT SUISSE FIRST BOSTON CORPORATION may have, within the last three years, served as a manager or co-manager of a public offering of securities for or makes