Supported by a significant surge in demand for the high-end 3G smartphones, Qualcomm Inc. (QCOM) reported better-than-expected financial results of its fourth quarter of fiscal 2010. Management is now more confident about fiscal 2011 and as a result, has given a financial outlook that also beats the current Zacks Consensus Estimates. In synergy with these positive developments, in the after-market trade on NASDAQ, stock price of Qualcomm was up $3.28 (7.18%) to $48.97.
Revenue
Quarterly total revenue of $2,952 million was up 9.7% year over year and beat the Zacks Consensus Estimate of $2,859 million. By segments, Qualcomm CDMA Technologies business accounted for $1,860 million of revenue in the fourth quarter, up 9% over the prior-year quarter and up 10% sequentially. Quarterly EBT margin was 28%. Qualcomm Technology Licensing generated $921 million, up 10% year over year and up 9% sequentially. Quarterly EBT margin was 82%. Qualcomm Wireless & Internet segment generated $171 million, up 17% year over year and 6% sequentially. Quarterly EBT margin was a negative 1%.
EPS
On a GAAP basis, quarterly net income was $865 million or 53 cents per share compared to a net income of $803 million or an income of 48 cents per share in the year-ago quarter. EPS of 53 cents was also above the Zacks Consensus Estimate of 51 cents.
Chipset Statistics
During the reported quarter, Qualcomm shipped approximately 111 million CDMA-based MSM chipsets, up 22% year over year and also up 8% sequentially. This was also better than the company’s guidance of 106 million – 111 million units. Average selling price of mobile handsets with inbuilt Qualcomm chipsets during this quarter was around $179 –$185.
We believe higher MSM chipset shipment was primarily due to massive demand for Android-based 3G smartphones. Android operating system was developed by Google Inc (GOOG) and requires more complex and expensive processors to work properly. Qualcomm’s innovative Snapdragon processors are generally used in Android- powered 3G smartphones.
Operating Metrics
Quarterly operating income was $837 million compared to an operating income of $803 million in the year-ago quarter. Cost of revenue was $988 million, up 19.9% year over year. R&D expense was $656 million, up 6.8% year over year. Selling, general, and administrative expense was $471 million, up 20.8% year over year. During the fourth quarter of fiscal 2010, Qualcomm repurchased 3.5 million common shares for total consideration of $122 million.
During the fourth quarter of fiscal 2010, Qualcomm generated $1,093 million of cash from operations compared to $1,321 million in the prior-year quarter. Free cash flow (cash flow from operations less capital expenditures) during the same quarter was $980 million compared to $1,177 million in the year-ago quarter.
Liquidity
At the end of fiscal 2010, the company had $18,402 million of cash & marketable securities and $1,086 million of outstanding debt on its balance sheet compared to $17,742 million of cash & marketable securities and no outstanding debt at the end of fiscal 2009.
First Quarter of Fiscal 2011 Financial Guidance
First quarter revenue will be within the range of $3.05 billion – $3.35 billion. Its mid-point of $3.20 billion is well above the current Zacks Consensus Estimate of $3 billion. Pro Forma EPS will be within the range of 63 cents – 67 cents, excluding 7 cents per share of stock-based compensation expenditures. Its mid-point of 65 cents is significantly above the current Zacks Consensus Estimate of 63 cents. Qualcomm is expected to ship 115 million – 119 million MSM chipsets during the first quarter of fiscal 2011.
Fiscal 2011 Financial Guidance
Fiscal 2011 revenue will be within the range of $12.4 billion – $13 billion. Its mid-point of $12.7 billion is well above the current Zacks Consensus Estimate of around $12.2 billion. Pro Forma EPS will be within the range of $2.30 – $2.44, excluding 32 cents per share of stock-based compensation expenditures. Its mid-point of $2.37 is significantly above the current Zacks Consensus Estimate of $2.32.
Neutral Recommendation Reaffirmed
We continue to believe the robust growth of 3G wireless networks and a very strong balance sheet will serve as long-term catalysts for Qualcomm. Smartphones are quickly becoming the next-generation choice, taking over the market share from basic mobile handsets. This is turn will help Qualcomm to sustain its revenue growth. Currently, Qualcomm is a Zacks #3 Rank (Hold) stock.
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