Qualcomm's Numbers Look Great

Qualcomm's earnings report on July 24 looks great. The stock should be much higher. This is one of the few cases with tech stocks where the market is overpricing risk.

Qualcomm's third quarter financial results really looked fantastic and the company also raised its outlook for the current period, despite its description of the next few months as a "crucial litigation time frame" in its patent-infringement fight.

The company reported earnings of $798 million, or 47 cents a share, for the quarter ended July 1. (vs. earnings $643 million, or 37 cents a share, for the same period last year when stock traded at $52).  Excluding charges related to stock options, the company said earnings would have come in at $934 million, or 55 cents a share, for the quarter (beating the street's 52 cent estimate).  Revenue grew 19% to $2.33 billion from $1.95 billion, beating the $2.27 billion expected by analysts.

The company saw revenue grow across its business lines. Its chip segment, for example, posted revenue of $1.37 billion for the quarter, up 21% from the previous year.  Also, Qualcomm's licensing unit boosted revenue 20% to $766 million, while its wireless and Internet segment grew 10% to $196 million in revenue.
The company lifted its revenue forecast for the fourth fiscal quarter to a range of $2.15 billion to $2.25 billion, an increase of 8% to 13% from its prior guidance. It expects earnings per share to fall between 48 cents and 50 cents for the period.  (Analysts had been expecting earnings of 47 cents a share on revenue of $2.21 billion for the quarter.)

This company faces tremendous challenges to its patents from Broadcom and Nokia.  The company has been very upfront about this risks, yet continues to guide up.  While these risks may affect this growth, there is no doubt that the company is continuing to grow as it sits at the centerpiece of the wireless growth in China and Asia.
This entire situation reminds me a little of what SanDisk went through earlier in the year - people questioning their patents and the recovery in their chips. Our market may be slowing - but the stocks that I want to own here are those that have the key IP relating to the few growth sectors in technology.  I am staying long Qualcomm (and Sandisk.)

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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  • Jeremy Artish

    August 08, 2007

    Qualcomm's numbers may look great, but these patent problems are here to stay.

  • Mkhan

    August 16, 2007

    Qualcomm should have gone much higher over the last 18 months, but instead it has been one misstep after another and the stock has gone from 53 to 37 in a strong economy. I don't think it is going to recover soon.

  • AronLiv

    August 25, 2007

    I think that Qualcomm is a fallen angel. Their hubris caused them to completely bungle the patent situation and now their chips are barred from US markets and their customers (Verizon and Sprint) are completely alienated. To boot, their W-CDMA licensing fees are causing the Asian carriers to start moving over to lower cost WiMAX systems. The parellels with Microsoft are scary. I am kicking myself for not selling at 53, but I had no idea that they would screw everything up so badly. I am dumping here. I don't know if it will go lower, but I see no catalyst for a recovery. I held it for 9 years. Wish I had sold in 2000, but it has been a good investment.

  • jME

    August 25, 2007

    The stock is very reasonably priced and it has always had the most brilliant people working for it. This company has historically rallied at precisely the moment that everyone leaves it for dead. So I wouldn't count them out yet.

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