Qualcomm Inc. (QCOM) reported record first-quarter fiscal 2012 financial results, where both the earnings per share (EPS) and revenues exceeded the Zacks Consensus Estimates. The out performance was primarily attributable to the surge in demand for high-end 3G smartphones and tablets.
The company’s Snapdragon platform and product diversification strategy induced management to significantly raise the company’s outlook for the second quarter of fiscal 2012 and beyond.
First Quarter Highlights
On a GAAP basis, quarterly net income was $1,401 million or 81 cents per share compared with $1,170 million or 71 cents per share in the year-ago quarter. However, adjusted (excluding special items) EPS in the reported quarter came in at 85 cents, surpassing the Zacks Consensus Estimate of 81 cents.
Total revenue of $4,681 million in the quarter was up 40% year over year, and surpassed the Zacks Consensus Estimate of $4,569 million. During the first quarter of fiscal 2012, Qualcomm shipped approximately 156 million CDMA-based MSM chipsets, up 32% year over year and 23% sequentially.
Gross margin was 62.5% compared with 68.9% in the year-ago quarter. Quarterly operating margin was 33.1% compared with 37.3% in the prior-year quarter.
Agreements of Analysts
Of the eight analysts covering the stock in the last 7 days, seven analysts revised the estimates upward for the second quarter of fiscal 2012. Likewise, for the third quarter of 2012, all the seven analysts covering the stock raised their EPS estimates.
Similarly, for fiscal 2012, all the seven analysts covering the stock in the last 7 days raised the estimates. Likewise, for fiscal 2013, out of the eight analysts covering the stock, seven analysts increased the estimates.
Most analysts raised the EPS estimate on the back of increased penetration of 3G-based smartphones into the huge Chinese market. Moreover, the growing popularity of new Snapdragon S4 processors has made the analyst more bullish on the stock.
Currently, the Zacks Consensus EPS Estimate for the second quarter of fiscal 2012 is pegged at 85 cents. The projected annual growth is 9.74%. Similarly, for the third quarter of fiscal 2012, the Zacks Consensus EPS Estimate of 78 cents indicates an annual gain of 24.04%.
Magnitude of Estimate Revisions
During the last 7 days, the current Zacks Consensus Estimates for the second and third quarter of 2012 remained in line with the previous estimates of 85 cents and 78 cents, respectively. Likewise, for fiscal 2012 and 2013, the current Zacks Consensus Estimates were in line with the prior estimates of $3.35 and $3.78, respectively.
Earning Surprises
With respect to earnings surprises, the company’s consistent track record of beating the estimates in the last four quarters is expected to persist in the coming quarters. In the last quarter, Qualcomm outpaced the Zacks estimate by a whopping 6 cents or 7.59%.
No surprises are expected for the ongoing and the third quarter of fiscal 2012. EPS growth potential for fiscal 2012 is also at breakeven. However, in fiscal 2013, there is an upside potential of 1.32%.
Our Recommendation
We believe Qualcomm’s record-high earnings; strong balance sheet, huge product pipelines and better market segmentation by introducing chipsets for mid-tier and upper-tier smartphones and tablets segment will act as positive catalysts in the long run. Moreover, Qualcomm chipsets are recently being used in most CDMA-based iPhone 4S from Apple Inc. (AAPL) will further bolster the company’s top-line growth in the forthcoming quarters.
We maintain our long-term Outperform recommendation on Qualcomm. Currently, Qualcomm has a Zacks #1 Rank, implying a short-term Strong Buy rating on the stock.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/
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