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Qualcomm beats Street
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April 18, 2000: 10:45 p.m. ET
Wireless provider posts 2Q profit 2 cents better than expected
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NEW YORK (CNNfn) - Wireless provider Qualcomm Tuesday reported second quarter pro forma earnings of $649 million or 26 cents a share, beating Wall Street estimates by two cents.
In late January, following its first quarter results, Qualcomm warned that CDMA chip and wireless telephone shipments might decline in its second quarter, and analysts lowered their expectations accordingly. First Call's consensus estimate pegged earnings at 24 cents a share.
The company noted that pro forma results exclude the phone business, including the operating results and costs associated with the sale of that business to Kyocera. Other figures excluded costs related to the acquisition of SnapTrack and additional charges.
 In after-hours trading Tuesday, Qualcomm (QCOM: Research, Estimates) gained 6-1/2 on Instinet, after finishing the day down 4-11/16, or 4 percent, at 112-3/16.
Qualcomm said its second quarter pro forma revenue of $649 million was 16 percent higher than the $558 million reported last year. Pro forma EPS for the second quarter of 26 cents was 44 percent higher than EPS of 18 cents a year ago.
Reported revenue was $728 million, versus $932 million in the year-ago period. Reported earnings per share were 25 cents in the second quarter compared to a loss of 7 cents per share a year ago.
Pro forma net income was $207 million compared to $190 million a year ago, an increase of 74 percent. Pro forma operating margins were 41 percent for the second quarter, up from 34 percent a year ago.
"As expected, second quarter revenues reflected lower shipments in our chip business, " Dr. Irwin Jacobs, chairman and chief executive officer of Qualcomm, said in a conference call with analysts. "However, we believe industry inventories have returned to normal levels and we expect a strong second half with record MSM chip shipments."
In its second quarter, Qualcomm acquired wireless technology provider SnapTrack; the technology development group of U.K.-based Tellit; and Within Technology, a systems consulting firm. All total, Qualcomm said the acquisitions were valued at more than $1 billion.
"During the quarter, we successfully completed the sale of our phone business to Kyocera," said Jacobs. "We also favorably settled a lengthy patent suit with Motorola (MOT: Research, Estimates), resulting in the extension of its CDMA license to include Qualcomm patents issued since 1995."
Ahead of earnings, Credit Suisse First Boston analyst Marc Cabi reiterated his "buy" rating on Qualcomm shares, and correctly forecast that the company's results would be in line with lowered expectations.
"We believe the company should also see a boost in interest income now that the handset and infrastructure businesses are divested," Cabi said in a research note late Tuesday.
Qualcomm expects demand for chips and software to pick up in its third quarter.
"With current bookings on hand today, we see shipments in the quarter being in excess of the 14.5 million shipped in fiscal Q1," Tony Thornley, Qualcomm executive vice president and chief financial officer, told analysts on the conference call.
"Given current indications, we are comfortable with the current consensus analyst estimates of 27 cents a share pro forma for the third quarter," Thornley said.
After the conference call, Pete Peterson, semiconductor analyst at Prudential Volpe, said the company should see an earnings boost going through the next seasonally strong periods.
"But that should be accentuated as we move toward the third and fourth calendar quarters, as 1X starts to become a real part of the sales," Peterson said.
Peterson upgraded Qualcomm last month to a "strong buy" in anticipation of 1X, the next version of the company's 3G CDMA wireless technology that will offer greater voice capacity and data speeds for over-the-air phone calls than the current industry standard. Peterson also expects to revise his EPS estimates after further review of the company's numbers.
"We could see the potential of this [1X] really becoming much hotter and more mainstream issue, which would have some positive impact on the stock," said Peterson.
Peterson noted that the company is also working on a wireless standard for Europe similar to the CDMA [Code Division Multiple Access] standard used by wireless phones in the U.S.
"In the past, Qualcomm had hinted that they would be a logical competitor in that market-spot place and that it would make sense to believe that they could do well, if they were to go there," he said.
"This is the first time [Tuesday's conference call] that they really got out in front of the investment community and said we're working on the product and anticipate doing well in this market-spot place."
Ahead of its earnings release, Qualcomm received a ratings upgrade from AG Edwards analyst Greg Teets to "accumulate."
"Because of the long-term growth outlook for the company and the stability of earnings generated by the royalty revenue, we are willing to give the company a premium over its peers," said Teets in a research note. 
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Qualcomm
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