Earnings Preview: Qualcomm Inc. (QCOM) Q4 2011
By:NewsyStocks   Monday, January 30, 2022 1:39 PM

Qualcomm Inc. (QCOM) is scheduled to release its first quarter earnings on February 1 at 1:45 PM. We are expecting the quarter to be in- line with guidance and the Street, with sales of $4.5 billion and EPS of $0.89.

We expect QCT sales to come in at $3 billion on 150M mobile station modems (MSMs), which represents a 27% YoY increase in unit volumes.  Apple's iPhone 4S generated record volumes in Q1 with total iPhone unit volumes coming in at 37M units.  Consumer Intelligence Research Partners believes 89% of iPhone volume was generated by iPhone 4S sales. Since Qualcomm has several chips in the 4S, we believe Apple's strength in the quarter will reflect positively on QCOM. However, this may be largely offset by slower non-Samsung Android sales.

Please note, however, because Apple only uses Qualcomm's stand-alone modems (MDM6610), which have a lower ASP than the fully integrated MSMs, Qualcomm's value in each iPhone's bill of materials may be slightly lower than on other smartphone models.

Third Quarter Results & Earnings History

QCOM reported revenues of $4.12 billion, up 39 percent year-over-year (y-o-y) and 14 percent sequentially. Operating income came in at $1.24 billion, up 29 percent y-o-y and 11 percent sequentially and net income at $1.06 billion, up 22 percent y-o-y and 2 percent sequentially.

Diluted earnings per share was $0.62, up 17 percent y-o-y and 2 percent sequentially, with an effective tax rate of 20 percent.

QCOM's operating cash flow stood at $1.82 billion, up 67 percent y-o-y; 44 percent of revenues.

QCOM reported an EPS of $0.62 in Q4 and $0.73 in Q3 of 2011 on revenues of $4.12 billion and $3.62 billion respectively.

Our Take

Societe Generale maintains a Hold on the company and its DCF-defined $55.5 price target reflects expectations of strong volume advances but also declining ASPs, and margins, as competition rises and smartphone market mix slips. The DCF model includes a WACC of 9.8% and 4% pa growth over 2015-22e, and 3% pa thereafter, with a long-term EBIT margin of 32%. Risks to price target on the downside are from market volume demand, rising competition and erosion in ASP mix vs above-expectation design wins on the upside.

On a YoY basis, new socket wins with RIM in their new BlackBerry 7 line of products and with Nokia in its new Lumia line of Windows Phone 7 devices would have certainly helped increase market share in the quarter.  Offsetting these positive influences, weakness in HTC and strength in Samsung's  smartphone sales may have had a negative impact on QCT sales - HTC uses Qualcomm chips in their products, whereas Samsung's highly successful Galaxy Nexus and Galaxy SII do not.  As HTC continues to lose market share and Samsung continues to gain market share, QCT's sales are negatively impacted. While Apple is a key driver, it seems like much of Apple's strong cal Q4-11 upside is already in Qualcomm's positive mid-quarter update. Concerns over later current-year growth, as the Atheros boost runs out, and the ability to sustain high market shares vs other ARM-based mobile IC suppliers and potential Intel vs ARM battles, both with potentially adverse implications for pricing, will likely limit the upside.