(RTTNews) - Wednesday after the closing bell, QUALCOMM, Inc. (QCOM) reported
first quarter results that revealed 4.5% year-over-year increase in net income
for a 16% growth in revenues as increase in operating expenses were
proportionately higher than revenues growth partially offset by more than
doubled investment income.
Operating income declined 11% as operating expenses rose 32%. Income tax
expenses were only 13% higher than last year period versus significantly higher
net investment income thus enabling cleaner bottomline.
On a pro forma basis, however, net income was better with over 8% increase. On a
per share basis, pro forma net income was over 10% higher than last year. This
number also beat consensus analysts' estimate by a penny.
Looking ahead, while reaffirming guidance for most of the parameters for its
second quarter and full year of 2007, QUALCOMM raised its GAAP earnings forecast
for full year 2007.
QUARTER I
For the first quarter of 2007, QUALCOMM posted net income of $648 million, or
$0.38 per share, on revenues of $2.02 billion compared to $620 million, or $0.36
per share, on $1.7 billion in the first quarter of 2006.
Revenues from equipment and services rose 16.7% to $1.34 billion from $1.15
billion in the year ago period. Licensing and royalty fees revenues grew 14.5%
to $677 million from $591 million last year.
Overall, revenues increased 1% sequentially, while net income reported 6% rise
over the prior quarter. However, a 31.7% increase in operating expenses to $1.44
billion from $1.10 billion last year, saw the operating income dwindling to $576
million from$645 million of last year period.
Cost on equipment and services rose 22.6% to $634 million from $517 million last
year, while the company spent 29.4% more on Research and development over last
year. The spending towards selling, general and administrative expenses were
54.4% higher than last year.
Net investment income of $203 million during the quarter compared to $91 million
in the year-ago quarter partially saved bottomline. Income tax expenses were
also only slightly higher at $131 million compared to $116 million in the first
quarter of 2006.
Operating cash flow during the quarter stood at $789 million, up 32%
year-over-year, and was 39% of revenues.
The company allocated $87 million towards share-based compensation, up 6%
year-over-year and 14% sequentially. Effective tax rate for the quarter was 17%
facilitated by a tax benefit of $33 million, or $0.02 per share, related to
retroactive extension of Federal research and development tax credit.
During the quarter under review, Congress extended the Federal research and
development tax credit that expired on December 31, 2005 for a period of two
years beyond the prior expiration date. Now the tax rate is estimated to be 21%
for the full year.
PRO FORMA
On a pro forma basis, net income for the first quarter of 2007 were $722
million, or $0.43 per share, compared to $667 million, or $0.39 per share, in
the similar quarter of last year. This also represents a sequential increase of
2%.
On average, 23 analysts, polled by First Call/Thomson financial, estimated $0.42
per share while their individual estimates ranged between $0.41 and $0.43 per
share. Meanwhile, 28 analysts estimated average revenues of $2.07 billion with
individual estimates having ranged $2.00-2.12 billion.
The company noted that pro forma results excluded $0.01 loss per share
attributable to the QUALCOMM Strategic Initiatives (QSI) segment, $0.05 loss per
share attributable to certain estimated share-based compensation, $0.02 earnings
per share attributable to certain tax adjustments related to prior years and
acquired in-process research and development expense.
Effective tax rate on a pro forma basis was 24% for the quarter versus
approximately 25% estimate for full year 2007. Free cash flow was $544 million,
up 2% year-over-year, and formed 27% of revenues.
CASH, DIVIDEND
For the quarter, the company declared a dividend of $0.12 per share versus $0.09
per share last year. QUALCOMM declared cash dividend of $0.12 per share, or $198
million aggregate, on January 12, payable on March 30 to stockholders of record
at the close of business on March 2. The company also repurchased common stock
worth $96 million in the quarter.
During the quarter, cash and cash equivalents increased by $1.04 billion
compared to $493 million decrease last year. At the end of the first quarter of
2007, cash and cash equivalents for the company was$2.65 billion compared to
$1.58 billion in the corresponding 2006 period.
Meanwhile, QUALCOMM's cash, cash equivalents and marketable securities totaled
approximately $10.5 billion at the end of the first quarter 2007, compared to
$9.9 billion at the end of full year 2006 and $9.4 billion a year ago.
QUALCOMM STRATEGIC INITIATIVES (QSI)
The QSI segment includes the company's strategic investments, including MediaFLO
USA subsidiary, and related income and expenses. GAAP results of QUALCOMM for
the first quarter of 2007 include $0.01 loss per share for the QSI segment. The
QSI results for the quarter included $42 million in operating expenses,
primarily related to MediaFLO USA.
COMMENTS FROM MANAGEMENT
Commenting on the results, CEO of QUALCOMM Dr. Paul Jacobs said the first
quarter results were driven by record 3G handset and chipset shipments. He
viewed that "The worldwide migration to CDMA-based technologies is accelerating
as we continue to execute with our partners to drive innovations into the
marketplace."
"Based on our current outlook for CDMA-based handset shipments, we are pleased
to reaffirm our calendar year 2007 forecast which represents approximately 28%
year-over-year growth. We are also reaffirming our most recent fiscal 2007
revenue and pro forma diluted earnings per share guidance as adjusted by our
recently announced acquisitions."
NOKIA RISK
QUALCOMM noted that license agreement with Nokia Corp. (NOK) expires in part on
April 9, 2007, with Nokia having an option exercisable through the end of 2008
to extend the agreement. The company has estimated the earnings risk due to
Nokia to be approximately $0.04-0.06 per share. The estimate assumes Nokia not
paying royalties in the fourth quarter of 2007 for June quarter shipments.
The company pointed out that Nokia has publicly stated that they intend to
continue to use our patents but not pay royalties after the expiration of their
rights under those patents on April 9, 2007 should a new license agreement or
extension of the existing agreement not be reached by that time.
As a result, under GAAP, the company said it will be unable to record royalty
revenues attributable to Nokia's sales until a court awards damages or agreement
with Nokia is reached.
QUALCOMM said in the event of not being able to conclude an extension or a new
license agreement beyond April 9, 2007, Nokia's rights to sell certain
subscriber products, such as cellular phones and wireless personal digital
assistant devices, "under most of ours patents will expire, as will our rights
to sell integrated circuits under Nokia's patents."
The company said it intends to pursue and obtain injunctions against Nokia's
sales as well as damages, which will include interest from the date of
infringement, for Nokia's unlicensed sales after April 9, 2007.
QUALCOMM further said, "While we will continue to work with Nokia to see if we
can reach an agreement, there is no guarantee that we will be able to
successfully resolve this matter before April 9, 2007 on terms which we find
acceptable and little progress has been made to date."
The company said it will aggressively pursue all its legal and business options
if it is unable to reach agreement, and Nokia continues to use its unlicensed
intellectual property. The company assumes that Nokia will do likewise.
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