CHICAGO – Wireless technology company Qualcomm Inc. (QCOM) on Wednesday reported a fiscal second-quarter profit that met expectations but warned that revenues and profit for the full year would be smaller than expected due to a decrease in cell phone chip sales.
Shares rose in pre-market trading to $33.60 from Tuesday's close at $32.25 as investors appeared to focus on the company's solid second-quarter results.
"They pretty much came in line," Jeffrey Schlesinger, wireless equipment analyst with UBS Warburg, said. "The upside was in the licensing business," he added, although he said the reason for it was immediately unclear.
San Diego-based Qualcomm reported a net profit of $43.9 million, or 5 cents a diluted share, compared with a year-earlier net profit of $109.7 million, or 14 cents per diluted share.
On a pro-forma basis, excluding investments and amortization of goodwill, the company posted a profit of 20 cents per share, matching the average estimate of 19 brokers surveyed by Thomson Financial/First Call. Estimates ranged from 19 cents to 21 cents.
Proforma revenue in the quarter was $659.3 million, compared with $717.1 million a year earlier. This beat analysts' average expectation of $651 million. Including the special items, revenue was $696.1 million.
Qualcomm, like other telecommunications equipment firms, has been suffering from the sluggish economy and the decrease in spending in the industry.
The company had said in the past that it expects its performance in the second half of the fiscal year to improve as more and more of its wireless operator customers launch networks with its advanced technology capable of high-speed wireless data access.
However, the company on Wednesday lowered its guidance for the full year, saying it now expects 2002 revenues to grow 4 percent to 8 percent instead of the 5 percent to 15 percent growth it expected in January.
It said proforma earnings per share would be 90 cents to 95 cents for the full year instead of the 90 cent to 97 cent range guided earlier.
The warning followed an announcement by South Korea's major mobile phone handset makers that domestic sales would drop significantly in the second quarter due to a government ban on local operators subsidizing the cost of handsets.
A decline in handset sales in South Korea could have a significant impact on Qualcomm because the South Korea wireless industry, which bases its networks on Qualcomm's patented CDMA (Code Division Multiple Access) technology, is one of Qualcomm's largest customers.
Most CDMA mobile phones contain a Qualcomm chip.
It was unclear whether the new guidance reflected the anticipated decrease in CDMA phone sales in Korea. Analysts said they would be looking for more details in the conference call later on Wednesday morning.
The company blamed the decrease in fiscal second-quarter revenues on lower royalties and unit shipments of chips as well as lower revenues from its business with satellite communications firm Globalstar, which declared bankruptcy in February.
Qualcomm shipped about 14 million chips in the second quarter, over half of which were CDMA2000 1X chips.
Qualcomm owns all of the relevant patents to CDMA technology, which is the dominant standard in the United States and second-biggest standard in the world. It competes against an alternative standard called GSM, or Global System for Mobile Communications.
CDMA2000 1X is its next-generation technology, which promises higher capacity and high-speed Internet connectivity. Wireless operators' deployment of CDMA2000 1X-based networks is considered to be a key driver of growth for Qualcomm.
For its fiscal third-quarter, the company said it expects revenues to rise 3 percent to 6 percent from the second quarter. It expects to post a proforma profit of 21 cents to 23 cents a share, matching analysts' average expectation according to First Call.
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