Qualcomm (NASDAQ:QCOM), the world's largest supplier of silicon to smartphones, warned that its growth rate would slow next year due to increases in the sale of less expensive phones, among other reasons. The news sent the company's stock down slightly in trading this morning to around $67 per share. However, the company, in its just-completed fiscal fourth quarter, notched significant increases in earnings and sales.
"Looking at the fiscal 2014, we are expecting solid growth but at a lower rate than what we delivered in the last few years. This is partially due to the exceptionally strong year we just completed which included share gains and content share gains in QCT," Qualcomm CEO Paul Jacobs said during the company's conference call with investors, according to a Morningstar transcript of the event. "In fiscal 2014 we are facing some mix and demand factors which we currently expect will moderate our QCT growth. In light of this we are taking near-term actions company-wide to prioritize investments, stay focused on growth but also control expenses in order to deliver operating profit growth in excess of revenue growth."
Jacobs noted that the basic drivers of Qualcomm's business--sales of smartphones and other computing devices--remain solid. Indeed, possibly in order to temper the company's expectations of a slowdown next year, the firm forecast "double-digit compound annual growth rates for both revenues and earnings per share over the next five years."
"This wasn't a bad report, but it's definitely not good," Stacy Rasgon, an analyst at Sanford C. Bernstein & Co., told Bloomberg.
Analysts noted that Qualcomm for the past few years has ridden the smartphone industry's dramatic growth pattern; Reuters pointed out that Qualcomm has posted double-digit growth every quarter for the past 13 quarters. But Qualcomm's warning that its growth could slow next year is an indication that the smartphone boom years could be giving way to slower growth rates on less expensive phones in emerging markets.
In its fiscal fourth quarter, Qualcomm notched revenues of $6.48 billion, up 33 percent year-over-year and 4 percent sequentially. The company's net income clocked in at $1.50 billion, up 18 percent year-over-year and down 5 percent sequentially. In the coming quarter, Qualcomm predicted its revenues would increase year-over-year between 5 and 15 percent. In the coming fiscal year, Qualcomm said it expects year-over-year revenues to increase by between 5 and 11 percent. Bloomberg noted that forecast for next year is far below the annual gains Qualcomm has enjoyed of up to 25 percent.
Not surprisingly, Qualcomm predicted China would emerge as one of its most important markets, partially due to Chinese wireless operators' plans to upgrade to LTE network technology. "We also expect strong growth in the low and mid-tiers, driven by emerging regions, including the anticipated launch of LTE in China in the second half of the fiscal year," said Steve Mollenkopf, Qualcomm's president and COO, during the company's conference call. "We continue to see growth in China across all smartphone tiers and what we refer to as our EA or Emerging Accounts, exceeded $1 billion in revenue in fiscal 2013."
Interestingly, Jacobs confirmed that Qualcomm had been considering purchasing assets from struggling BlackBerry. However, he said that company's recent deal to obtain $1 billion in financing effectively ended those discussions. "There were some assets that we were interested in and we were looking at," Jacobs told Bloomberg.
"That is of the table now," Jacobs told the Wall Street Journal.
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