Growth Questions for Qualcomm

The wireless communications company had a solid third quarter, but uncertainty about a key customer clouds the outlook

Qualcomm (QCOM) announced a solid gain in quarterly profit, but the stock only edged up 0.3% on Nov. 3 as investors wondered how long the company's growth pace will last.

The San Diego wireless communications company also gave its outlook for the coming months and warned about the potential loss of its client the handset maker Nokia (NOK) .

Qualcomm said late Nov. 2 that its net income during the fourth fiscal quarter 2006 (ended September) amounted to $614 million, or 36 cents per share, compared to $538 million, or 32 cents per share during the comparable period of 2005.

Qualcomm sells Mobile Station Modem chips, which are essentially computer chips used with cell phones and a kind of network known as "third generation" or 3G. The company shipped a record 207 million of these MSM chips in fiscal 2006, up from 151 million in fiscal 2005.

"3G networks with mobile broadband capability are now widely deployed across the globe, enhancing opportunities to gain new 3G subscribers and for the migration of existing second generation subscribers to 3G," said Qualcommm CEO Paul E. Jacobs in a press release.

As of September, 2006, there were around 402 million subscribers using third generation CDMA-based networks worldwide as compared to approximately 273 million at the same point in 2005, Qualcomm said. CDMA is a kind of digital communications technology.

The market didn't show a strong reaction to the news. Qualcomm's stock rose 0.3% to $36.45 per share on the Nasdaq.

Besides announcing its growth this year, the company gave an outlook for the months ahead. During fiscal 2007, it expects $1.45 to $1.50 earnings per share, compared to $1.44 per share in fiscal 2006.

And those estimates don't include the possibility that the handset maker Nokia, an important Qualcomm client, walks away from business during the fourth quarter of 2007. In the event that Nokia decides not to renew a license agreement with Qualcomm that expires on April 9, Qualcomm's results could suffer by 4 to 6 cents in diluted earnings per share. Nokia is one of six companies that have submitted complaints to regulators about Qualcomm's competitive practices.

Standard & Poor's analyst Ken Leon cut his earnings forecast for the fiscal year 2007 ending in September to $1.65 from $1.70, noting the legal risks that the company faces and slowing CDMA demand in Latin America. Given the new estimate, he lowered his 12-month target price to $42 from $50 per share. (S&P, like, is owned by The McGraw-Hill Companies.)

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