Qualcomm - a well-executed quarter

Tuesday, April 29, 2008

Qualcomm (QCOM) announced its Q2 2008 financial results last week. Buoyed by the demand for its various silicon solutions and the migration to 3G, Qualcomm had a revenue increase of 17% y-o-y and a pro-forma EPS increase of 8% y-o-y. Even as it continues to exclude royalty fees owed by Nokia, the company also raised its estimates for revenues and earnings for fiscal 2008.

The San Diego-based pioneer of CDMA technology reported revenues of $2.61bn for the quarter and GAAP net income of $766mn. The net income was up 6% y-o-y and even sequentially. The GAAP diluted EPS was $0.47. The pro forma net income was $894mn at an operating margin of 34.4%. The company returned around $1.2mn in shareholder capital through dividends and stock-repurchase programs and retains $10.6bn in cash and marketable securities.

Qualcomm’s chipmaking division, QCT had over $1.6bn in revenue at an operating margin of 26%. This 29% y-o-y revenue increase comes from the shipment of 85mn MSM units. Qualcomm Technology Licensing (QTL) division posted $795mn in revenues at a staggering 86% operating margin. This operating margin is the key to Qualcomm’s successful business model. With the weighted operating margin at around 35% - a level unseen by most semiconductor companies – Qualcomm is able to direct a huge portion of its revenue into R&D helping create more value for the company.

Looking ahead, the company guided 8-16% y-o-y revenue growth and pro forma EPS of $0.50-0.52 for the fiscal third quarter of 2008. Also, expecting to sell 488 – 518mn CDMA-based devices in fiscal 2008, Qualcomm also raised its 2008 revenue guidance to $10-10.4bn. It also raised its corresponding pro forma EPS to $2.04-2.09. This is in line with my 2008 Qualcomm revenue estimates that you can look here.

Overall, Qualcomm has done well amidst all the economic concerns. Furthermore, the company is well equipped to handle adverse situations with its broad range of mobile product offerings, the wide geographical distribution of its customer base and its diversification into new market areas. Its legal battles not withstanding, Qualcomm continues to be the flag-bearer of the US wireless industry. Paul Jacobs' concluding remarks summarize Qualcomm’s quarter – “It’s really about focus and execution.”

[In the sequel I will look at Qualcomm’s strategic initiatives as discussed in the earnings call. In the meantime, for the interested reader, here is a link to my Qualcomm valuation series on Sramana Mitra’s site. You can find earlier coverage of QCOM on my site here, here, here and here.]

[Long Qualcomm at the time of writing]

Posted by Vijay Nagarajan at 1:00 AM  


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