Qualcomm Predicts Profit, Sales That Exceed Estimates

Jan. 30 (Bloomberg) -- Qualcomm gave a second-quarter sales and profit forecast that exceeded analysts’ estimates, helped bystrong sales of smartphones that run on its technology. Alix Steel reports on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Qualcomm Inc. (QCOM), the largest seller of semiconductors for mobile phones, gave a second-quarter sales and profit forecast that exceeded analysts’ estimates, helped by strong sales of smartphones that run on its technology.

Profit in the current period will be 98 cents to $1.06 a share on revenue of $5.8 billion to $6.3 billion, San Diego- based Qualcomm said in a statement yesterday. Analysts on average had projected net income of 94 cents on sales of $5.87 billion, according to data compiled by Bloomberg. The company also said Chief Financial Officer William Keitel, 59, is retiring and will be replaced by George Davis, CFO of Applied Materials Inc. (AMAT)

The rising use of Internet-ready handsets that run on fast fourth-generation networks lifts sales of Qualcomm’s chips. It also boosts revenue from licenses for mobile technology, which generates the bulk of profit. The forecast reflects growth in developing markets and brisk demand from first-time smartphone buyers, Chief Executive Officer Paul Jacobs said.

Emerging markets in general are going to be strong,” Jacobs said in a telephone interview. “We’re definitely driving the low-end markets hard so we can get a lot of new people onto smartphones. Things are going well across the board.”

Qualcomm rose 3.9 percent to $66.02 at the close in New York. The stock climbed 13 percent in 2012, equal to the gain in the Standard & Poor’s 500 Index.

Chips, Licensing

Net income in the fiscal first quarter, which ended Dec. 30, rose 36 percent to $1.91 billion, or $1.09 a share, from $1.4 billion, or 81 cents, a year earlier. Sales increased 29 percent to $6.02 billion. Analysts on average had predicted earnings of 97 cents on sales of $5.9 billion.

Qualcomm’s forecasts are based on the growing popularity of smartphones and the company isn’t expecting world economic growth to accelerate, Keitel said. Any improvement will happen outside of developed economies, where government debt and high taxes will continue to hold back expansion, he said.

“I just don’t see any signs that that’s going to improve in any measurable degree,” he said in an interview. Qualcomm bases its financial predictions on an assumption that the world economy will grow 3 percent, he said.

Keitel plans to step down in March after 11 years as CFO and will remain with the company through 2013 as an adviser. Davis, 55, joins Qualcomm after almost 13 years at Applied Materials, the largest maker of chip-manufacturing equipment.

Smartphone Sales

The majority of Qualcomm’s revenue comes from baseband chips, which connect phones to cellular networks, sold to wireless-device makers such as Apple Inc. (AAPL), HTC Corp. (2498) and Samsung Electronics Co. Most of the company’s profit comes from the licensing of so-called code division multiple access technology, a radio-communications standard used in other chips, handsets and phone systems.

Qualcomm benefited as smartphone shipments surged an estimated 29 percent in the December quarter, said Stacy Rasgon, an analyst at Sanford C. Bernstein & Co.

“They are seeing chipset share gain and average selling price increase,” said New York-based Rasgon, who recommends buying Qualcomm shares. “In emerging markets, there is still tons of penetration to be had, and in developed markets, which are more saturated, there’s still not a lot of 4G connections.”

Qualcomm is doing better at winning orders from makers of cheaper phones in China, Jacobs said. That’s helping convert more consumers to smartphone owners, which raises the market’s average selling price for handsets. That in turn bolsters Qualcomm’s licensing revenue.

For the fiscal year ending in September, Qualcomm raised its revenue projection to as much as $24.4 billion, representing a gain of 28 percent from the year earlier. The company had forecast sales of as much as $24 billion.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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