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Qualcomm earnings show why (now) it's better to sell to Apple and Samsung than to be Apple and Samsung
01/31/2013 9:05 pm EST
Yesterday, after both Apple and Samsung reported sales and earnings that disappointed the markets, Qualcomm reported an earnings and revenue beat and raised guidance for the next quarter based on just that positioning. Shipments of Qualcomm’s modem chips—sold to both Apple and Samsung (and other smartphone makers)--reached 182 million units, up 17% for the same quarter (the first quarter of the company’s fiscal year) of fiscal 2012. Sales of actual chips are only part of Qualcomm’s revenue stream. The company also makes money from collecting licensing fees when other manufacturers use its technology. (As the industry as a whole grows so do Qualcomm’s licensing revenues.) Licensing fees climbed 20% in the quarter.
Earnings for the company’s fiscal first quarter were $1.26 a share (excluding non-recurring items), 14 cents above the Wall Street consensus. Revenues at $6.02 billion, up 28.6% year over year, were slightly above the $5.9 billion consensus.
For the next quarter, the fiscal second quarter of 2013, Qualcomm told Wall Street it expects earnings per share of $1.10 to $1.18 (against an analyst consensus before the call of $1.10) and revenue of $5.8 to $6.3 (versus a Wall Street consensus of $5.89 billion.) For all of fiscal 2013 Qualcomm raised its earnings per share guidance to $4.25-$4.45 from its prior guidance of $4.12-$4.32. The Wall Street consensus was $4.32.
In the chip business you’re only as good as your next technology. Here Qualcomm has built a commanding edge for its modem chips by investing heavily in the next generation LTE technology now being rolled out of the smartphone industry. The company’s technology edge is big enough that Credit Suisse sees Qualcomm expanding its share of industry revenue for modems from the current 39% to 44%.
On a different but related front Qualcomm’s Snapdragon mobile chipset continues to make progress at broadening the company’s sales base beyond modems to complete chip platforms and beyond smartphones to tablets. In the conference call the company said that 600 devices using Snapdragon have been announced with 450 base designs in development, and 90 designs in development for the 600 and 800 Snapdragon processors.
I’m raising my 12-month target price for Qualcomm shares to $82 from my previous target of $77.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Qualcomm as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
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