Earnings Scorecard: Qualcomm Inc. – Analyst Blog

Qualcomm Inc. (QCOM) continues to provide a weak financial outlook as the company is facing increasing competitive threat resulting in lower ASP (average selling price). This is for the fourth consecutive quarter that Qualcomm provided a tepid guidance with sequential decline in revenue.

 

As a result, the Zacks Estimate Revision trend also remains flat for the ensuing third quarter of fiscal 2010. Stock price of Qualcomm plunged nearly 14% till date from April 21, the day when it declared its second quarter fiscal 2010 financial results.

 

 

Qualcomm’s second quarter earnings exceeded the Zacks Consensus Estimate by 4 cents while revenue was slightly better than the Zacks Consensus Estimate. Revenue growth primarily generated from solid performance of CDMA Technologies segment and a slight increase in Technology Licensing segment was partially offset by a decline in Wireless & Internet segment revenue.

 

Strong growth in CDMA Technologies segment was supported by massive global demand for 3G smartphones. However, in spite of facing an improving global economic condition, Qualcomm is still suffering top-line fluctuations. Management projected that its third quarter revenue will decline by nearly 1.14% year over year.

 

 

Analysts are fairly divided regarding their estimate revision for Qualcomm. Out of the 12 analysts covering the stock, in the last 30 days, 6 analysts upwardly revised their estimates for the ongoing third quarter while 5 moved in the opposite direction. For the fourth quarter, 4 analysts moved up estimates in the last 30 days while 3 have chosen the other side.

 

Current Zacks Consensus EPS Estimate for the third quarter is 47 cents. If that actually materializes, it would be a modest 2.7% year-over-year growth. Additionally, in the last 30 days, 10 analysts raised their EPS estimates for full fiscal 2010 and 3 analysts reduced the same. For full fiscal 2011, 5 analysts raised their EPS estimates while 4 analysts reduced theirs.

 

The major factor for the upward estimate revisions by the analysts is the increasing demand for 3G smartphones throughout the world. Qualcomm is the major chipset supplier for BlackBerry, Symbian, and Andriod-based smartphones. We also expect that the company may provide chipset solutions to 3G iPhones in 2010. Qualcomm’s next-generation Snapdragon platform is receiving increased market traction among leading smartphone and notebook developers.

 

The major concern for Qualcomm is the aggressive competition in the mobile phone chipset market. Competition is likely to come from formidable rivals like Broadcom Corp. (BRCM), ST-Ericsson, and Infineon, as well as from low-cost competitors like Mediatek of Taiwan and VIA Technologies of China. Average revenue per MSM chipset is declining gradually. This is primarily due to a lower ASP for mobile handsets using Qualcomm chipsets as well as an unfavorable product mix toward low-end mobile handsets and data cards.

 

Given the equally strong presence of positive and negative factors, the consensus opinion among the analysts remains flat. It indicates future growth for Qualcomm albeit at a low percentage.

 

In accordance with a flat consensus analyst estimate for Qualcomm, the Zacks Consensus EPS Estimate for the ensuing quarter and the following quarter remains unchanged over the last 30 days. For full fiscal 2010, Zacks Consensus EPS Estimate moved up by 4 cents but that was entirely due to good second quarter results. However, for full fiscal 2011, the Zacks Consensus EPS Estimate moved up by 2 cents over the same time period.

 

 

We continue to believe the robust growth of 3G networks and solid net cash position of over $18 billion will serve as long-term catalysts for Qualcomm. Smartphone shipment as a percentage of total mobile phone shipment is likely to double by 2014 globally. This in turn will help Qualcomm to sustain its revenue growth.

 

However, in the near term, we do not expect any market share gain by the company due to severe competitive pressure. The smartphone market itself is becoming intensely competitive resulting in lower ASP, which in turn is also negatively affecting Qualcomm’s royalty business.