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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: Jon Koplik who wrote (12571)	7/19/1998 5:17:00 AM
From: jpbrody	Read Replies (2) \| Respond to of 152472

Lehman's earnings outlook for Qualcomm from: lehman.com (This link will likely be dead in a few days.) We believe Qualcomm is likely to deliver flattish QoQ earnings in the current 3Q98 broadly in line with the current consensus estimate of $0.26 (Vs our estimate of $0.27). We look for 3Q98 revenues (excluding licensing and royalties) of around $840-850 million with gross margin levels similar to the 22.6 % seen in 2Q98. We have been modeling handset margins of around 10-11% reflecting some of Qualcomm's manufacturing issues. In addition, R&D should move higher to around $90 million vs $77 million in 2Q98 impacted by research engineers previously incorporated in the Globalstar/Contract Services program being absorbed into the general corporate budget. Increased R&D expenses are likely to be offset by healthy licensing and royalty revenues of $35-40 million above the initial estimate of $30 million. We also believe that the quarter is likely to include some charges relating to Qualcomm's investment (around $20 million) in Nextwave which recently formally declared bankruptcy. Following lower earnings of $0.25 in 2Q98 (impacted by Asia, handset issues) and flattish earnings in 3Q98, we expect Qualcomm's profitability to see a strong rebound in 4Q98 to a level of around $0.54 Vs $0.58 in 1Q98. On the 3Q98 conference call management may highlight that this increase is likely to reflect the rollout of the high margin cellular Q phone which is on schedule for initial shipments in July as well as increased infrastructure shipments. We estimate that handset sales could reach over $450 million in 4Q98 Vs $410-420 in 3Q98 with handset gross margins increasing from 11% to 16-18%. Higher infrastructure volumes estimated at around $100 million Vs $75-80 million in 3Q98 from shipments to regions such as Mexico should substantially improve the financial performance of this currently loss making division. We note that in addition to its investments in Mexico with Grupo Pegaso, Qualcomm could potentially benefit from Nortel emerging as the likely winner of a $590 million the contract to supply SPC. As part of its strategic partnership with Nortel, Qualcomm shares in 20-25% of any CDMA order won by Nortel. In addition, we look for healthy CDMA chipset sales of around $150 million up from an estimated $125 in 3Q98. Globalstar ground station shipments should remain in the $75-80 million range. We maintain that overall corporate gross margins (excluding licensing and royalties) should increase from around 23% in 3Q98 to 25-26% in 4Q98. Going forward, we consider Qualcomm retains substantial earnings leverage as its manufacturing businesses achieve higher volumes and increased efficiencies and operating margins improve. We view this wireless innovator as an exciting investment vehicle with a compelling valuation at less than 1x FY99 sales. We view our earnings estimates of $1.64 and $2.70 as conservative and our twelve month price target is $75 or just 25x our initial calendar 99 earnings estimate of $2.90.