Qualcomm Climbs as Emerging Markets Speed Smartphone Shift

Qualcomm Inc.'s Chief Executive Officer Paul Jacobs
Qualcomm Inc.'s Chief Executive Officer Paul Jacobs predicted that the last three months of 2012 will be “strong.” Photographer: David Maung/Bloomberg

Qualcomm Inc., the largest seller of mobile-phone semiconductors, rose after quarterly results showed consumers in emerging markets are trading up to next-generation handsets, lifting profitability.

Consumers outside Europe and North America are shifting to more advanced devices, Chief Executive Officer Paul Jacobs said in an interview. That’s adding to the company’s licensing revenue, and increasing the likelihood that phone makers will opt for chips from Qualcomm. The average price that Qualcomm will use to calculate licensing revenue will be $216 to $222 for fiscal 2012, from an earlier estimate of $207 to $217.

“In the U.S. and Europe demand has been muted, but we continue to see strength in China,” said Bill Kreher, a St. Louis-based analyst at Edward Jones & Co. “The mix continues to go to higher-end phones.”

The shares climbed 3.4 percent to $57.94 at 9:58 a.m. in New York. Through yesterday, they increased 2.5 percent this year.

Even as the company benefited from gains in developing economies -- and it predicted that demand will pick up in the final three months of the year -- Qualcomm’s forecasts for sales and profit this quarter missed analysts’ predictions. Fiscal fourth-quarter profit will be 62 cents to 68 cents a share on sales of $4.45 billion to $4.85 billion, San Diego-based Qualcomm said in a statement yesterday. Analysts were projecting profit of 76 cents a share and sales of $4.89 billion, the averages of estimates compiled by Bloomberg.

Snapdragon Demand

Qualcomm is the largest of companies that concentrate on designing chips and have them manufactured at so-called foundries located in Asia. The company said in April that demand for its Snapdragon processors was outstripping supply and that it would have to increase spending to bring on new manufacturing partners.

“Smartphones displacing feature phones continues,” said Ian Ing, an analyst at Lazard Capital Markets in San Francisco. He recommends buying Qualcomm shares. “Wireless is one of the better end-markets right now.”

The company relies on outside suppliers, such as Taiwan Semiconductor Manufacturing Co., to build its chips. Qualcomm’s inability to get enough chips made with the latest manufacturing technology is forcing some of its phone maker customers to postpone the introduction of handsets, and it’s limiting sales of models already on the market.

Net income in the third quarter, which ended in June, was $1.21 billion, or 69 cents a share, compared with $1.04 billion, or 61 cents a share, a year earlier. Sales rose 28 percent to $4.63 billion. Analysts on average had predicted profit of 73 cents a share and sales of $4.67 billion.

Strong Holiday?

“It’s a near-term issue that we’re going through,” said Qualcomm’s Jacobs. He predicted that the last three months of 2012 will be “strong.”

As much as 30 percent of the annual total of smartphones will be shipped in the last three months of the year as companies begin selling new models aimed at firing up year-end holiday-season sales, Chief Operating Officer Bill Keitel said in interview.

Qualcomm sells baseband chips, which connect phones to cellular networks, to wireless device makers, including Samsung Electronics Co., Apple Inc. and HTC Corp. Those companies account for more than a quarter of Qualcomm’s sales, according to a Bloomberg supply-chain analysis.

The company is also expanding into the market for application processors, the chips that run programs in phones and tablet computers, and will be supplying its Snapdragon processors to computer makers using the new version of Microsoft Corp.’s Windows software.

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