Qualcomm set for the long-term

Martin Garner/Ovum
28 Apr 2008

Qualcomm last week posted record results and raised its outlook for the coming year, providing a welcome counter to the gloomy tone hanging over other mobile phone-related announcements.

It shipped 85 million MSM mobile phone chipsets, up 39% over the year. Revenue for the quarter was $2.6 billion (€1.63 billion), ahead of analyst estimates, showing growth of 17%. Net income grew 6% to $766 million (€480 million).

The results exclude any royalties for Nokia, the subject of current litigation.

CEO Paul Jacobs described these as strong results based on accelerating adoption of 3G technologies around the world and the fact that Qualcomm's business is diversified geographically so it is not dependent on the US economy.

He raised the company's guidance for the full year for revenue by 4% from $9.6-10.0 billion to $10.0-10.4 billion and for diluted EPS by 1%.

It's now clear that the mobile market is delivering quite mixed messages at the moment, but also that there is no sign of an across-the-board downturn.

Qualcomm's chipset division saw revenue growth of a thumping 29% in the year to $1.62 billion (€1.02 billion) and even managed sequential growth of 3%. A lot of the financial analyst discussion focused on the fact that Qualcomm has adjusted its outlook for volumes downwards by 4 million mostly to reflect slightly weaker than forecast demand in Western Europe for high-end phones.

This softening of European demand is emerging as a consistent story in this round of results, but the adjustment by Qualcomm is just 1% of overall volumes. In our experience anyone who can forecast a year ahead to within 1% in this market is doing very well.

The other key factor that emerged from these results is that the mix for 3G chipsets is shifting more towards lower end devices, as 3G is driven down the range by a number of handset vendors. The cheapest 3G phones shipping in volume are now priced at $80. For Qualcomm this means that its average sale price (ASP) for chipsets will fall, but that the addressable market is growing.

Qualcomm highlighted the interest in and potential for its Gobi and Snapdragon chipsets, which provide embedded cellular in laptops and other consumer devices, further expanding the addressable market. They will not make a material contribution this financial year, but are expected to become significant in the results in 2009.

QTL, the technology licensing division, saw revenue grow 5% over the year to $795 million (€498 million), while its profits grew 8% to $684 million (€429 million), roughly 75% of the company's EBT.

Qualcomm is challenging the rulings against it in the litigation with Broadcom from 2007, and there is progress in the litigation with Nokia by consolidating a number of items into a single arbitration action in the Delaware court. Qualcomm also settled a smaller dispute with Sony Ericsson in the quarter.

QWI, the wireless internet and services group, saw its revenues slip 2% over the year to $194 million (€122 million). This is an area of significant investment in broadening the company's services base, with the recent acquisitions of Firethorn and Xiam as highlights.

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