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Qualcomm says year on track, focuses on China

A Qualcomm sign is seen at one of Qualcomm's numerous buildings located on its San Diego Campus February 7, 2011. REUTERS/Mike Blake
A Qualcomm sign is seen at one of Qualcomm's numerous buildings located on its San Diego Campus February 7, 2011. REUTERS/Mike Blake

By Noel Randewich

SAN FRANCISCO (Reuters) - Leading mobile chipmaker Qualcomm Inc posted higher fiscal first-quarter revenue that slightly missed estimates as smartphone growth shifted to China, but it bumped up its full-year earnings outlook and said 2014 was playing out as expected.

With growth in the smartphone industry moving away from wealthy markets such as the United States and toward China and other emerging economies, where consumers favor less expensive devices, Qualcomm has been focusing on costs to preserve its profitability.

The San Diego, California company said on Wednesday it sold more mobile chips than it expected in the December quarter and that it was making progress in trimming its operating expenses. It expects demand for its chips to grow later this year as leading mobile carrier China Mobile rolls out cellphone services using the advanced LTE technology Qualcomm dominates.

Wednesday's was the first quarterly report since Qualcomm announced in December that Chief Operating Officer Steve Mollenkopf would take over from Paul Jacobs as CEO starting in March.

"Our business is getting at the forefront of a technology migration that is occurring in China," Mollenkopf told Reuters. "For us now, there's the opening up of the largest carrier there."

Qualcomm slightly increased its full-year forecast for earnings per share to a range of $5.00 to $5.20, from $4.95 to $5.15, essentially adjusting for first-quarter earnings that came in above the company's own previous estimate.

"We raised the full-year EPS guidance but really just to reflect the positive results of Q1. We see the rest of the year playing out pretty much in line with our original expectations," Chief Financial Officer George Davis said in an interview.

Qualcomm had first-quarter net income of $1.88 billion, down 2 percent. GAAP diluted earnings per share were $1.09. Its non-GAAP earnings per share were $1.26, above its previous forecast of between $1.10 and $1.20.

On Monday, lower-than-expected holiday iPhone sales and a weak revenue forecast by Apple Inc, a major Qualcomm customer, renewed fears on Wall Street about Chinese demand and a tepid global market.

"It could have been worse, given how sentiment has gotten in the last couple of days," Bernstein analyst Stacy Rasgon said of Qualcomm's quarterly results.

While the majority of Qualcomm's revenue comes from selling baseband chips that let phones communicate with carrier networks, most of its profit comes from licensing patents for its ubiquitous CDMA cellphone technology. As phone prices edge lower, Qualcomm receives less royalty revenue.

Average prices for cellphones in the September quarter, used to calculate licensing revenue for Qualcomm in the December quarter, were between $219 and $225, the company said. That was less than the $223 to $229 range that Qualcomm estimated for the June quarter in its previous earnings statement.

CHINA PROBE

Mollenkopf said Chinese authorities had told Qualcomm that the substance of an antitrust investigation into the chipmaker, launched in November, were confidential. He said Qualcomm was cooperating but declined to comment further on the investigation, which could potentially lead to a record fine exceeding $1 billion.

Qualcomm, founded in 1985, has become the top chip supplier for smartphones and its stock value has surpassed that of Intel Corp. Intel is still the world's largest chipmaker by revenue but is struggling to gain a foothold in mobile.

Qualcomm shares are up about 12 percent over the past 12 months, lower than the S&P 500's gain of roughly 18 percent. The chipmaker's shares trade at about 14 times expected earnings, on par with Intel.

Qualcomm reported first-quarter revenue of $6.62 billion, up 10 percent from the year-ago period. Analysts on average had expected first-quarter revenue of $6.665 billion, according to Thomson Reuters I/B/E/S.

It said revenue in the fiscal second quarter, which ends in March, would range from $6.1 billion to $6.7 billion. Analysts on average expect second-quarter revenue of $6.723 billion, according to Thomson Reuters I/B/E/S.

Qualcomm maintained its forecast for 2014 fiscal revenue between $26 billion and $27.5 billion.

Its adjusted earnings per share in the first quarter included a 25-cent gain from the sale of its Omnitracs logistics business as well as a 20-cent impairment charge. The company said that those and other smaller items added a net 4 cents per share to adjusted earnings.

Qualcomm shares were up 2.8 percent in extended trading after closing down 1.21 percent at $71.12 on Nasdaq.

(Reporting by Noel Randewich; Editing by Andrew Hay and Tom Brown)

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