Qualcomm posts strong quarterly results, but outlook worries analysts

Rival Broadcom sets sights on more smartphone chip sales
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Qualcomm (NASDAQ:QCOM) reported typically strong quarterly earnings but its long-term outlook for the year spooked some analysts and investors as worries fly that the chipset giant could be facing lower royalty payments and tougher competition in Asia.

Qualcomm said its revenue for its second fiscal quarter, which ended March 31, rose 24 percent year-over-year to $6.1 billion. Net income, however, fell 16 percent to $1.87 billion. But it was Qualcomm's long-term profit forecasts for the rest of the year that worried analysts.

The chipset giant said that revenue in the third quarter will rise from $5.8 billion to $6.3 billion, compared with an average analyst prediction of $5.88 billion, according to Bloomberg. Qualcomm said it expects full-year revenue of $24 billion to $25 billion, up from its prior forecast of between $23.4 billion and $24.4 billion.

However, according to Reuters, investors focused on the company's full-year earnings per share forecast, which fell short of some expectations. The company's shares dropped as much as 7.1 percent following its earnings announcement Wednesday, according to Bloomberg.

"You're seeing revenue upside but not the earnings upside you'd want to come with it," Sanford C. Bernstein analyst Stacy Rasgon told Reuters. "Whether it's because of competition or they're investing to stop competition, either way--it can lead to margin decline."

A key Qualcomm metric is the average selling prices for 3G and 4G devices, which determines how much money the company gets in royalties. For the full year, Qualcomm predicted average selling prices as high as $224 per phone. That forecast is lower than earlier company predictions of ASPs as high as $226 per phone. In the last quarter, Qualcomm was paid royalties based on an average price of $214 to $220 per phone, so ASPs will likely need to rise as the year progresses for Qualcomm to hit its target. 

Qualcomm CEO Paul Jacobs pointed to China as a major driver of growth for the company. But phones are generally cheaper in China than in Western markets, a situation that could cut into Qualcomm's profits. "If you look at the emerging regions, they are becoming a much more significant portion," Jacobs told Bloomberg. "China was a big strength for us."

Meanwhile, Qualcomm rival Broadcom reported that net income rose to $191 million, up from $88 million in the year-ago period. Total sales increased to $2.01 billion, up from $1.82 billion in the year-ago quarter.

Broadcom said it expects to expand into more smartphones this year. "Over the course of the year, we should see additional customers in our baseband business," CEO Scott McGregor told analysts on the company's earnings conference call, according to Reuters.

Broadcom's wireless business had sales of $996 million in the first quarter, up from $875 million a year ago. For the second quarter, the company expects revenue in that business to rise sequentially.

Broadcom is moving to compete with Qualcomm in the smartphone application processor business as well, and has focused primarily on emerging markets. Broadcom counts Samsung Electronics as a major customer for both application processors and basebands, primarily for mid-range smartphones.

For more:
- see this Qualcomm release
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article
- see this Broadcom release
- see this separate Bloomberg article
- see this separate Reuters article

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