Qualcomm Inc. (QCOM) is slated to release its fourth quarter 2010 results on Wednesday, November 3 after the closing bell. The current Zacks Consensus Estimate for the fourth quarter is 51 cents per share, representing annualized growth of 16.67%.
With respect to earnings surprises, over the trailing four quarters, Qualcomm’s average earnings surprise was a positive 3.40%, implying that the company has outperformed the Zacks Consensus Estimate by the same magnitude over the last four quarters.
Third-Quarter Performance
On July 21, Qualcomm reported its third quarter fiscal 2010 results. Revenues of $2.70 billion were down 2% year over year but better than the Zacks Consensus Estimate of $2.622 billion.
On a GAAP basis, quarterly net income was $767 million or 47 cents per share compared with a net income of $737 million or an income of 44 cents per share in the year-ago quarter. Third quarter fiscal 2010 adjusted (excluding special items) EPS of 50 cents was also well above the Zacks Consensus Estimate of $0.47.
Segment wise, Qualcomm CDMA Technologies business accounted for $1,691 million of revenues in the third quarter, down 5% over the prior-year quarter, but up 10% sequentially. Qualcomm Technology Licensing generated $847 million, up 5% year over year, but down 13% sequentially.
For 4Q10, management expects revenues to be in the range of $2.67– $2.93 billion. Pro forma EPS is expected to be in the range of 55 cents to 59 cents, excluding 7 cents per share of stock-based compensation expenditures.
For fiscal 2010, management expects revenues to be in the range of $10.7–$11.0 billion. Pro Forma EPS is expected to be in the range of $2.33–$2.37, excluding 27 cents per share of stock-based compensation expenditures.
Agreement of Estimate Revisions
In the last 30 days, out of the 9 analysts covering the stock, 1 analyst increased one EPS estimate while none of the analysts decreased their EPS estimates for fourth quarter fiscal 2010.
In the last 30 days, out of the 11 analysts covering the stock, 1 analyst increased the EPS estimate while none decreased their EPS estimates for fiscal 2010. Similarly, for fiscal 2011, out of the 11 analysts covering the stock, 1 analyst increased the EPS estimate, while 1 decreased the same.
Magnitude of Estimate Revisions
Despite the positive revisions, earnings estimates for fourth quarter, in the last 30 days, remained flat at 51 cents. Similarly, for fiscal year 2011, the earnings estimate revision was flat at $2.30. While for fiscal 2010, the earnings estimate revision was up by a penny from $2.06 to $2.07.
In synergy with the massive growth of 3G networks, several large wireless operators are now offering variable data pricing plans. This resulted in a boom for mobile data traffic and a significant surge in demand for data capable devices.
During third quarter 2010, Qualcomm shipped approximately 103 million MSM chipsets, up 10% year over year and also up 11% sequentially. This was also better than the company’s guidance of 97–102 million. Management expects to ship 106–111 million MSM chipsets during the fourth quarter.
Our Take
We believe the company is in a position to benefit over time, as demand for high-end smartphone is increasing gradually, supported by rapid deployment of 3G networks throughout the world. Qualcomm has a strong balance sheet that will enable it to sustain its long-run R&D ventures.
We believe that the valuation is appropriate, given Qualcomm’s expected earnings growth, profitability profile, current valuation versus its peers, as well as its own historical averages.
We maintain our long-term Neutral recommendation for Qualcomm. Currently, it is a short-term Zacks # 3 Rank (Hold) stock.
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