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July 23, 2009
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After the market closed yesterday, Qualcomm Inc. (QCOM), the largest developer of digital mobile chipsets based on the CDMA wireless technology, reported financial results for the third quarter fiscal 2009. Both the top-line and bottom-line were significantly above our expectations and at the high-end of the revised guidance provided by the company. Total revenue of $2.75 billion remains almost at the same level compared to the prior-year quarter with an improvement of 12% sequentially. This was primarily due to the impressive performance by its core mobile chipset division.
Qualcomm sold 94 million MSN chipsets in the third quarter, up 36% sequentially. Revenue from its CDMA Technologies business (that develops mobile chipsets) was $1,786 million in the same quarter, up 1.4% over the prior-year quarter and up 35.7% sequentially. Despite facing a challenging economy, management expects to ship between 88 million – 92 million of MSN chipsets during the fourth quarter.
Adjusted diluted EPS (excluding the special items) during the third quarter was $0.48 compared to $0.50 in the prior-year quarter and just $0.33 in the previous quarter. The huge improvement of the bottom-line compared to the previous quarter was mainly due to effective cost control and lower than anticipated impairment of its investment portfolio. As a result of the company’s prudent cost management strategy, operating expenses in the reported quarter were down 5% year-over-year.
During the third quarter, Qualcomm generated more than $1 billion cash from operations and capital expenditure was $149 million resulting in a positive free cash flow of $938 million. This improves the company’s cash & marketable securities to $15.7 billion at the end of the third quarter of 2009 compared to $14 billion at the end of the previous quarter. This portentous cash balance will enable Qualcomm to undertake major R&D activities for new strategic initiatives.
We believe the robust growth of smart-phones in developed wireless markets along with 3G network deployments in emerging markets serve as long-run growth catalysts for Qualcomm. As 3G networks become mainstream deployments, consumer preferences are shifting towards more expensive high-end, feature-rich smart-phones. At the end of June 2009, there were 830 million 3G subscribers throughout the world with 28% year-over-year growth. Companies including Research In Motion (RIMM)">RIMM) and Nokia (NOK)">NOK) have introduced their respective new 3G feature phones on which Qualcomm collects royalty owing to its patents. Other key customers include Samsung, LG, Motorola (MOT)">MOT), and Kyocera (KYO)">KYO).
Qualcomm’s other ventures in mobile TV (Media FLO), mobile computing (Gobi notebook chipset), and mobile banking (Firethorn) have emerged as formidable player in their respective markets. A major initiative of Qualcomm is the convergence of mobile computing with next-generation Snapdragon platform. These chipsets have been designed for pocket-sized portable computing devices. As of now, over 15 mobile device manufacturers are developing more than 30 Snapdragon-based products. Toshiba has already introduced its TG01 smart-phone using the Snapdragon chipset. Several leading software developers have started writing applications for mobile operating system, multimedia player, social networking, and productivity tools development based on the Snapdragon platform.
We reaffirm Buy recommendation for Qualcomm.
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Read the full analyst report on "MOT"
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