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Qualcomm Q3: immune to smartphone slowdown

Chip giant beats forecasts for revenue, profit and selling prices, consolidating dominance of handset sector

By CAROLINE GABRIEL

Published: 25 July, 2013

READ MORE: Financial | Qualcomm | Semiconductor | Handset

Qualcomm continues to ride the smartphone wave and, despite fears of saturation and price wars in that sector, the chip giant provided an upbeat forecast for its fiscal fourth quarter as well as turning in a strong Q3.

High smartphone growth in emerging markets and rising orders from Apple in anticipation of a new iPhone are both seen as factors in Qualcomm's good performance. It predicts sales between $5.9bn and $6.6bn for the current fiscal Q4, which ends in September, with net income of 86 to 94 cents per share, somewhat ahead of Wall Street expectations.


But with signs of smartphone slowdown at Samsung, HTC and Apple, Qualcomm's apparent imperviousness also reflects its ability to gain market share at the expense of weaker rivals, some of whom have recently exited the mobile processor game altogether (ST- Ericsson, Texas Instruments).

For the most recent quarter, fiscal Q3, net income was up 31% year-on-year to $1.58bn, or 90 cents a share, on revenue up 35% to $6.24bn, ahead of analyst consensus forecasts of 89 cents a share on sales of $6.05bn. Qualcomm shipped 172m units of its core MSM processor/modem products, which was up 22% year-on-year though down 1% on the previous quarter.

As emerging market consumers trade up to smartphones, average selling prices have actually risen and were stronger than Qualcomm had expected, said CFO George Davis, and sales volumes also exceeded the company's expectations. ASPs for handsets sold in the quarter that ended in March - the basis of Qualcomm licensing revenue booked in the June quarter - were $227 to $233. For that March quarter, total devices with Qualcomm chips were worth $56.5bn, up 18% year-on-year, while 244m to 248m units of 3G/4G devices shipped during the same three-month time frame.

For the full fiscal year, the firm significantly increased ASP projections for devices incorporating Qualcomm chips, to $223 to $229, from an earlier figure of $216 to $224. That would compare with last year's $216 to $222.

"There's still very broad-based demand for smartphones and for chips," Davis told Bloomberg. "You've got a tremendous growth engine in the developing markets and you're still seeing good growth in developed markets." Qualcomm's broad geographical and product reach, and its ability to drive down costs in its highly integrated system-on-chip offerings for affordable smartphones, enable it to offset the slower growth in high end flagship handsets better than competitors. However, COO Steve Mollenkopf said he expected that trend to change in the holiday season when the big OEMs release their new flagships. Another important factor for Qualcomm, he said, was the expansion of its Chinese customers outside their home market.

For fiscal 2013, Qualcomm said revenue would rise to $24.3bn to $25bn, a slight upgrade in its guidance.

CEO Paul Jacobs said in his statement: "We delivered another strong quarter as our Qualcomm Snapdragon solutions were prominent in a broad set of flagship smartphones, and 3G/4G device average selling prices were stronger than expected. We also focused on return of capital to stockholders and increased our stock repurchases and dividends paid during the quarter. This quarter, we continued our technology leadership, with our Snapdragon 800 processor powering the world's first LTE-Advanced smartphone. We see expanding opportunities for growth of 3G/4G devices around the globe, driven by the strong pace of innovation in the industry."

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