Qualcomm handily beats Street, shares rise

NEW YORK Wed Feb 1, 2012 8:44pm EST

A Qualcomm sign is seen at one of Qualcomm's numerous buildings located on its San Diego Campus February 7, 2011. REUTERS/Mike Blake

A Qualcomm sign is seen at one of Qualcomm's numerous buildings located on its San Diego Campus February 7, 2011.

Credit: Reuters/Mike Blake

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NEW YORK (Reuters) - Qualcomm Inc's quarterly profit easily beat Wall Street forecasts and the wireless chip leader raised its full-year financial targets due to growing demand for smartphones such as Apple Inc's popular iPhone.

Shares in the biggest supplier of cellphone chips rose 5 percent after the company also said it has been winning business from rivals and is benefiting from growing demand for smartphones in emerging markets such as China.

Qualcomm, widely known as the main wireless chip supplier for the latest iPhone, was helped by the launch of the blockbuster device late last year, analysts said.

"It's a very strong result. The move to smartphones in the emerging markets in the success of the iPhone is driving its earnings higher," Canaccord Genuity analyst Mike Walkley said.

He said Qualcomm also generates hefty technology royalties from Apple, which does not disclose its chip suppliers.

Qualcomm appears to be taking business from rivals such as STMicroelectronics and Intel Corp, whose Infineon chip business has been a big supplier for the iPhone, Walkley said.

The company raised its revenue target for full-year 2012 to a range of $18.7 billion to $19.7 billion from its previous target of $18 billion to $19 billion.

Qualcomm also said it expects full-year earnings per share, excluding unusual items, of $3.55 to $3.75, up from its previous forecast for $3.42 to $3.62.

For its first fiscal quarter Qualcomm's earnings, excluding unusual items, of 97 cents per share were well ahead of Wall Street expectations for 90 cents according to Thomson Reuters I/B/E/S.

DISMISSES MARGIN CONCERNS

But even as they applauded the strong results and outlook, analysts on Qualcomm's conference questioned the company's ability to maintain profitability in its chip business since it faces pressure to cut chip prices as much of its growth is coming from phones that use less expensive chips.

Qualcomm Chief Financial Officer William Keitel said the company typically reduces chip prices for its customers every first quarter, noting that this would happen again this period.

But he said high sales volumes in countries like China will continue to offset lower prices and profit margins in these markets, ensuring revenue and earnings growth for at least the next five years for Qualcomm.

"That concern's been there three years now but each year investors have been pleasantly surprised," Keitel told Reuters. There's so much volume opportunity in the emerging markets what we're seeing is that the volume upside is more than compensating for the revenue and margin pressure."

While Qualcomm is seeing some pullback in smartphone demand in Europe, because of economic concerns there, the company said it is seeing strong growth in markets such the United States, Japan and South Korea.

In particular the company expects strong growth in these markets from smartphones using Long Term Evolution, an emerging high-speed wireless technology. Qualcomm expects LTE to represent a third of Qualcomm chip shipments by year-end, according to Keitel.

"They're in the right place at the right time on three major trends," Snyder said, referring to Qualcomm's strong position in China, in the market for LTE chips, and with Apple.

REGULATORY CORRUPTION PROBE

On the conference call Chief Executive Paul Jacobs also disclosed that U.S. and California regulators are investigating whether Qualcomm complies with the Foreign Corrupt Practices Act. But investors appeared to shrug off the announcement after Jacobs said he is confident the company is in compliance.

The preliminary investigation, which Qualcomm learned about January 27, was included in the company's quarterly report in a section discussing a whistleblower case brought against Qualcomm in 2010. Keitel would not discuss the case further.

San Diego, California-based Qualcomm reported a profit of$1.395 billion, or 81 cents per share, for its fiscal first quarter ended December 25, compared with a profit of $1.17 billion, or 71 cents per share, in the year-ago quarter.

Revenue rose to $4.68 billion from $3.35 billion, and compared with Wall Street expectations of $4.58 billion according to Thomson Reuters I/B/E/S.

In November, Qualcomm had forecast first-quarter revenue of $4.35 billion to $4.75 billion and first-quarter net earnings per share of 70 cents to 76 cents.

Qualcomm shares rose 5 percent to $62.58 in late trade after closing at $59.56 in the regular Nasdaq session.

(Reporting By Sinead Carew; Editing by Steve Orlofsky, Phil Berlowitz and David Gregorio)

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