Qualcomm pops in Q2, but forecasts slowdown

Chip heavyweight Qualcomm (NSYE:QCOM) posted solid gains in revenue and profits in its fiscal second quarter, but the company's prediction of declining earnings in the coming months appeared to jolt investors, who sent Qualcomm's shares down by more than $2 per share following the news.

Indeed, Qualcomm's Paul Jacobs acknowledged the tightened chip market in a prepared statement released with Qualcomm's earnings: "Calendar year 2010 3G device shipments are progressing in line with our expectations, and although we're continuing to operate in a competitive chipset pricing environment, we're positioned to continue to grow share through new partner engagements and our broad, industry-leading 3G chipset roadmap. Our business is executing well and we are pleased to be raising our earnings guidance for the fiscal year."

Qualcomm notched revenues in the second quarter of $2.66 billion, up from the $2.46 billion it recorded in the prior year and about even with the previous quarter's $2.67 billion. The company's net income roared in at $774 million, a dramatic reversal of the $289 million it lost in the year-ago quarter (which was largely due to the company's $748 million settlement with Broadcom in that quarter), but was down from the $841 million Qualcomm recorded in the prior quarter.

However, it was the company's third-quarter outlook that drew attention. Qualcomm forecast a decline in earnings per share of up to 9 percent, year-over-year, in its coming quarter. That warning was offset, however, by Qualcomm's predictions for the full year: an earnings-per-share increase of as much as 92 percent year over year.

Qualcomm's stock closed at around $42 per share before the company's earnings release, and opened at around $40 the morning after.

Ahead of Qualcomm's results, research firm iSuppli issued a status report on Qualcomm specifically and the silicon market for cell phones in general. The firm said total revenue for all kinds of semiconductors used in cell phones in the first calendar quarter of 2010 amounted to $9.4 billion, up 4.6 percent from $9 billion in the fourth quarter of 2009, according to preliminary estimates. But iSuppli warned that Qualcomm, the world's largest supplier of integrated circuit semiconductors for mobile handsets, is facing stiff competition. "Qualcomm in recent quarters has been losing share in mobile handset ICs to competitors including ST-Ericsson, Infineon and MediaTek," noted iSuppli's Francis Sideco.

Interestingly, Qualcomm's second quarter provided a glimpse into the company's mobile TV efforts. Qualcomm's QSI segment, which houses its FLO TV business, recorded a $0.05 diluted loss per share. "The second quarter of fiscal 2010 QSI results included $134 million in operating expenses, primarily related to FLO TV," the company said. Qualcomm's FLO TV operation has been working to boost its profile in the market with a series of direct-to-consumer efforts.

For more:
- see this FierceWireless Q1 earnings page
- see this release
- see this WSJ article (sub. req.)
- see this AP article

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