Qualcomm shines on smartphone and China growth

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Qualcomm shines on smartphone and China growth

Mobile chip leader's fiscal Q1 shows 40% leap in revenues as most markets shift away from featurephones and non-handset sales rise

By CAROLINE GABRIEL

Published: 2 February, 2012

READ MORE: Financial | Qualcomm | Semiconductor

The mobile chip sector had mixed fortunes in the last quarter of 2011 but Qualcomm offered hope for the whole market with strong results and a bullish forecast, sending its stock to its highest level for over a decade.

The largest mobile chip supplier credited strong smartphone demand and good performance in the high growth markets of India and China with its results. Its revenues in its first fiscal quarter, ended December 25, rose 40% year-on-year to $4.68bn while net income was up by 20% to $1.4bn. Operating income jumped by 24% to $1.55bn.

"I am pleased to report another record quarter with revenues, earnings and MSM shipments reaching all-time highs, driven by our industry leading chipset portfolio and the continued strong demand for smartphones around the world," said CEO Paul Jacobs. "We are raising our revenue and earnings guidance as our broad licensing partnerships and extensive chipset roadmap, led by our integrated Snapdragon processors, position us well for strong growth in fiscal 2012." Shipments of the core product line, the MSM handset chipsets, rose 32% year-on-year to 156m units.

Qualcomm's forecast pleased Wall Street, predicting Q2 sales between $4.6bn and $5bn, ahead of estimates. For full year 2012, the firm offered an upgraded guidance of $18.7bn to $19.7bn in revenue, which would be a rise of 25% to 32% on fiscal 2011, with earnings per share of $3.36 to $3.56.

"They continue to execute as well as they ever have, which has always been excellent," James Faucette, an analyst for Pacific Crest Securities, told Bloomberg. "They're now at a size and scale that is hard to disrupt competitively."

Jacobs said there would be four key drivers of Qualcomm's business during the rest of the year - strong demand for smartphones across all regions; growth in China; 3G and 4G in tablets, e-readers and other non-handset devices; and new slots for the Snapdragon app processor family beyond the smartphone, in mobile computing and consumer electronics.

Qualcomm's famous licensing business is also benefiting from the industry shift towards smartphones. While the average selling prices of those handsets is under pressure, the overall move away from featurephones benefits a broad-based supplier like Qualcomm, both in chips and royalty revenues. The latter are calculated according to cellphone prices, and the average selling price is expected to be between $204 and $216 in the current quarter, ahead of previous forecasts of $197 to $209.

There is a dark cloud over the fine results though. Qualcomm revealed that it was being investigated for compliance with US law governing foreign business practices. The US Attorney's office in its home city of San Diego, and the Department of Justice, have begun a preliminary investigation into compliance with the Foreign Corrupt Practices Act of 1977 (FCPA), which sets out accounting transparency requirements for American companies doing business abroad and forbids bribery of foreign officials.

"We believe we are in compliance with the requirements of the FCPA, and we will continue to cooperate with this investigation and look forward to resolving this matter," said Jacobs during the analyst conference call.