Top Financial News
Wed, 01 Sep 1999, 7:10pm EDT
Qualcomm Shares Fall 12% on Concern That 4th-Quarter Profit May Disappoint
By John Stebbins
Qualcomm Falls on Concern 4th Qtr May Disappoint (Update4)
(Updates with executive stock sales at end of story.)
San Diego, Sept. 1 (Bloomberg) -- Shares of Qualcomm Inc.,
the best-performing stock on the Standard & Poor's 500 Index this
year, fell 12 percent on concern that fiscal fourth-quarter
profit won't top forecasts by as much as in past quarters.
The developer of the world's second-most popular cellular-
phone technology tumbled 23 1/2 to 168 11/16, wiping out $3.77
billion in market value in the biggest drop since April 19.
Trading of 24.3 million shares made Qualcomm the second-most
active U.S. stock.
Everen Securities Inc. analyst Mark Roberts, who met with
management yesterday, said falling prices and a parts shortage
may prevent Qualcomm from repeating its performance of the past
three quarters, when it topped per-share forecasts by an average
of 28 percent. A drop in cell-phone prices has accelerated to as
much as 30 percent from 15 percent to 20 percent during the past
few quarters, cutting into Qualcomm's profit, Roberts wrote.
''Although the company has substantially beat estimates the
last couple quarters, we doubt the company has the ability to
exceed fourth-quarter expectations to that same extent,'' Roberts
wrote.
Qualcomm declined to comment on the share decline or the
meeting with Roberts at its San Diego headquarters. It issued no
public statement about its discussions with the analyst.
Roberts expects fourth-quarter earnings of 88 cents a share.
Analysts polled by First Call Corp. expect 87 cents for the
quarter that ends this month.
In the third quarter, profit rose to $134.9 million, or 75
cents a share, including the sale of a cellular-network division,
from $24.7 million, or 17 cents, a year earlier. That beat the 63-
cent First Call estimate.
Surge
Qualcomm makes digital cell phones and the chips that run
them. It also developed wireless technology called code-division
multiple access, or CDMA, the fastest growing standard in the
world.
The company's shares have surged more than sixfold this year
on demand for its phones and chips and royalties from CDMA, which
almost doubled to $93 million in the third quarter from the year-
earlier quarter.
About 45 percent of Qualcomm's revenue comes from cell phone
sales and 20 percent from its semiconductors, said Ed Snyder, a
Hambrecht & Quist LLC analyst, who rates Qualcomm a ''market
perform.''
CDMA has caught on because it provides more capacity than
competing digital cellular standards and is considered more
efficient for data services that let users send and receive e-
mail and browse the Internet.
Qualcomm has hoped to benefit from the potential for the
technology in China, the world's most populous country. Roberts,
however, wrote that in his meeting with company management, Chief
Executive Irwin Jacobs ''was more cautious than we would have
expected regarding the rollout of CDMA in China.''
Analyst Snyder said that China hasn't played a big part in
Qualcomm's revenue, but ''the stock's run-up had expectations for
China built in. At this valuation, everything has to work
right.''
Competition
Competition from Finland's Nokia Oyj, the No. 1 cell-phone
maker, and No. 2 Motorola Inc. also is putting pressure on
Qualcomm, Snyder said.
In the first quarter, Qualcomm had a 14.8 percent share of
the U.S. market for digital cell phones, while Schaumburg,
Illinois-based Motorola had 11.2 percent, according to market
research firm Dataquest. Motorola was late in adopting digital
technology, but has been catching up, analysts said.
Nokia, which knocked Motorola out of the No. 1 spot with new
digital phones, is going after the U.S. market. Today, it said it
won a $40 million order to supply CDMA cell phones to US West
Inc.
''Nokia and Motorola, the big boys, are coming into this
market,'' Snyder said. Every time someone buys a competitor's
phone, Qualcomm loses twice: once on the phone and once on the
chips, he said.
''Qualcomm is a great company, but the growth won't be as
great as in the past couple of quarters,'' Snyder said. ''It
can't be, not with Nokia and Motorola pushing prices down.''
Insiders Sell
As Qualcomm shares soared to records in the past month,
management has been selling shares.
Since July 28, executives, directors and other insiders have
moved to sell about 1.4 million shares, according to the
Washington Service, which tracks insider sales and purchases.
Those shares would be worth about $236 million at today's price.
Insiders who recently filed with the U.S. Securities and
Exchange Commission include Neil Kadisha, a Qualcomm director and
the chief executive of GNC Industries Inc., who on Aug. 11 filed
to sell 750,000 shares.
CEO Jacobs on Aug. 16 filed to sell 20,000 shares. President
Richard Sulpizio filed to sell 75,000 shares between Aug. 19 and
Aug. 23, and Senior Vice President Paul Jacobs filed to sell
60,000 shares on Aug. 30.
From the beginning of the year through July, insiders sold
about another 1.4 million shares, worth at least $210 million.
Those planned sales were disclosed to the SEC as Qualcomm
shares rocketed from 25 29/32 at the end of 1998 to a record 198
5/8 on Aug. 26. The stock reached an all-time closing high of
192 3/16 yesterday.
Last year, when the shares rose about 5 percent, company
insiders sold 215,240 shares, according to Washington Service
data. Those shares were worth at least $11.9 million.
''We don't think that the sales at Qualcomm are very
significant,'' said Stacey Griffin, a First Call/Thompson
Financial research analyst. ''The reason is that the insiders at
Qualcomm have been very steady sellers as the stock has gone up.
Anybody would be selling at these prices.''
Christine Trimble, Qualcomm spokeswoman, said the company
doesn't comment on the financial affairs of company officials. |
