July 20, 2006

Qualcomm reported 3rd quarter results of $1.95 billion in revenue and $643 million in net income, increases of 44 percent and 15 percent, respectively, from the year-ago quarter.

The chip vendor attributed earnings to sales of its CDMA2000 1x EV-DO and W-CDMA chipsets.

The vendor’s outlook for the fourth quarter was cautious, however, with expectations for revenue between $1.88 billion and $1.98 billion.

Wall Street forecasts had projected fourth quarter revenue at $1.99 billion and earnings per share above Qualcomm’s own estimates. Qualcomm’s stock price fell as a result by 2.4 percent to $35.85 per share.

Analysts’ reactions were mixed. ThinkEquity Partners L.L.C. analyst Mike Burton upgraded his rating on Qualcomm stock and suggested that long-term trends such as growth in the sale of low-tier phones in emerging markets favored the chip vendor.

On potential threats to Qualcomm’s long-term profitability, Burton said that news of CDMA network operators’ possible shift to GSM is overblown. He also said that current litigation between Qualcomm and Nokia Corp., as well as between Qualcomm and Broadcom Corp., would not impact the chip vendor’s results for several years.

Analyst Maynard Um at UBS suggested that acceleration of W-CDMA sales, as forecast by Qualcomm, is crucial to the vendor’s growth and that the company’s cautious forecasts for the fourth quarter could prove conservative.

CIBC World Markets analyst Ittai Kidron said Qualcomm’s chipset market share may be peaking as Samsung Electronics Co. Ltd. and LG Electronics Co. Ltd. take a beating from Nokia and Motorola Inc., but that a “bounce back” by the Korean firms would benefit Qualcomm.

The multiple lawsuits involving Qualcomm appear to be fueling its research-and-development spending and a commitment to a long technology investment cycle, Kidron wrote in a note to investors.

Source: RCR News