Qualcomm Inc. (QCOM) reported mixed financial results for the second quarter of fiscal 2014. While net income surpassed the Zacks Consensus Estimate, total revenue fell below the same.
Qualcomm is facing double-edge problems. Firstly, smartphone demand is gradually dwindling in the developed markets with its focus shifting to the emerging ones.
Secondly, China, on which Qualcomm is highly dependent for near-term growth, is lagging in the rollout of 4G LTE network. As a result, the adoption of LTE-enabled smartphones is facing delay in the country. All these headwinds resulted in a $3.14 (3.89%) fall in the stock price to $77.57 in the aftermarket trade on Nasdaq.
On a GAAP basis, quarterly net income from continuing operations stood at $1,958 million or $1.14 per share compared with $1,863 million or $1.06 per share in the year-ago quarter. However, adjusted (excluding special items) earnings per share came in at $1.20, breezing past the Zacks Consensus Estimate of $1.09.
Quarterly total revenue of $6,367 million was up 4% year over year, but fell below the Zacks Consensus Estimate of $6,497 million. Segment wise, Qualcomm CDMA Technologies businesses contributed $4,243 million of revenues in the second quarter, up 8% over the prior-year quarter. Quarterly EBT margin was 17%. Qualcomm Technology Licensing generated $2,071 million in revenues, up 1% year over year. Quarterly EBT margin was 89%.
During the second quarter of fiscal 2014, Qualcomm shipped approximately 188 million CDMA-based MSM chipsets, up 9% year over year. This figure was exactly in line with the company’s guidance. Average selling price (ASP) of a mobile handset with an in-built Qualcomm chipset during the quarter was around $221–$227.
Quarterly operating income came in at $1,990 million compared with $1,877 million in the year-ago quarter. Gross margin was 61% as against 69.4% in the year-ago quarter. Quarterly operating margin was 31.3% compared with 30.7% in the prior-year quarter. In the reported quarter, the company returned $589 million (35 cents per share) to its shareholders in the form of cash dividends and another $1 billion through buyback of 13.4 million shares of common stock.
During the second quarter of fiscal 2014, Qualcomm generated $1,814 million of cash from operations compared with $2,216 million in the prior-year quarter. Free cash flow, in the reported quarter, was $1,227 million against $1,927 million in the year-ago quarter.
At the end of the first half of fiscal 2014, Qualcomm had $32,053 million of cash and marketable securities and no outstanding debt on its balance sheet compared with $29,406 million of cash and marketable securities and no outstanding debt at the end of fiscal 2013.
Third Quarter of Fiscal 2014 Financial Guidance
The third-quarter revenues are expected in the range of $6.2–$6.8 billion. GAAP earnings per share are projected to be 98 cents–$1.08. Non-GAAP earnings per share are likely to range between $1.02–$1.12 including 13 cents per share of stock-based compensation expense. Qualcomm is expected to ship 198–213 million MSM chipsets in the third quarter of fiscal 2014.
Fiscal 2014 Financial Guidance
The fiscal 2014 revenues are expected in the $26–$27.5 billion range. GAAP earnings per share are likely to be between $4.37 and $4.57. Non-GAAP earnings per share are forecasted in the band of $4.54–$4.74 including 51 cents per share of stock-based compensation expense. ASP of mobile handset with an in-built Qualcomm chipset during fiscal 2014 is projected around $218–$228.
Other Stocks to Consider
Qualcomm currently has a Zacks Rank #2 (Buy). However, other well-performing stocks in the wireless equipment developers industry include Juniper Networks Inc. (JNPR), ShoreTel Inc. (SHOR) and Nokia Corp. (NOK). While both Nokia and ShoreTel carry a Zacks Rank #1 (Strong Buy), Juniper holds a Zacks Rank #2 (Buy).