Business, Hardware

Qualcomm Rakes in a Record 1Q 2011 and Raises 2011 Expectations

For Qualcomm, 1Q 2011 was a record quarter for not only revenue and earnings per share, but also for overall MSM chipset shipments as well. Qualcomm reported a net income of $1.17B on $3.35B in revenue; these figures represent a year over year increase of 39% and 25% respectively. In addition to that, they also saw sequential increases over the previous quarter of 35% for net income and 13% in revenue. These figures equate to an EPS of $0.71 which was up 42% year over year and 7% quarter over quarter.

As far as shipments go, Qualcomm shipped approximately 118 million units of their popular MSM chipsets [for handsets and tablets] which translated to an increase of 28% year over year and 6% sequentially. Qualcomm?s steady growth of shipped units is partly attributable to the increasing dominance of the Android platform which is predominantly populated by Qualcomm chipsets. There is also the fact that Apple [AAPL] is entering the CDMA space as well in the coming weeks and this presents a possible opportunity for Qualcomm. While we are not sure whether or not Apple is actually using Qualcomm?s chips in their iPhone on Verizon, there is good reason to believe that they are considering that Qualcomm has the most experience in the CDMA market. Furthermore, Qualcomm would enable them to achieve things like LTE much quicker and save them money on development costs, unless Apple chooses to stay quasi-in-house. If the rumors that Qualcomm is making the CDMA iPhone?s chips, then we can expect to see an even brighter 2011 for Qualcomm as they would effectively be playing both sides of the quickest moving mobile smartphone OS market.

With all of these interesting figures, we also need to remember that Qualcomm also made a bid to acquire wireless networking leader Atheros for $3.1B. For many investors, they saw this as a logical progression of Qualcomm?s growth and their need to strengthen their IP portfolio in order to create a more unified ecosystem. This ecosystem would rely heavily on Qualcomm?s mobile handset chipsets and associated software APIs.

One of the disappointing announcements, though, was the fact that the QSI division of Qualcomm was still reporting a loss and was mainly due to FLOTV. In addition to that, Qualcomm solidly confirmed that they would be killing off the FLOTV service entirely as well as selling off their 700MHz spectrum to AT&T for $1.9B. FLOTV as a business and a network will cease to exist in March 2011 as well as the MediaFLO technologies division. For the FLOTV initiative, Qualcomm expects their restructuring to be complete by the end of fiscal 2012, which means continued losses for the QSI segment through 2011. Even though Qualcomm will continue to lose money in the QSI division for the foreseeable future, they are already in the process of cutting their losses and will hopefully look better in fiscal 2012. Furthermore, Qualcomm?s other divisions? profitability will more than make up for any losses attributable to QSI as has been the case for the past few quarters.

Also, Qualcomm appears to have fairly conservative outlooks basically putting 2Q 2011?s earnings expectations at effectively the same level of this quarter?s even though we expect them to beat those estimates. After our roundtable with Qualcomm, our expectations were reaffirmed and we are confident that Qualcomm has a solid lineup of products coming in 2011. The only remaining question is? when can we expect a quad-core processor to compete with Nvidia?s Tegra 3 chipset? Nvidia?s new competition with Qualcomm in the same segment is likely to cut into Qualcomm?s revenue if they do not remain competitive. While we do not expect Nvidia to significantly cut into Qualcomm?s revenue or market share in 2011, there is a good chance that could steadily change from quarter to quarter. This could especially hurt Qualcomm in the long run if they allow the perception of their leadership to change as a result of Nvidia’s products and strong marketing. At this point, we wish to remain cautiously optimistic that there is new competition which spurs better products and innovation because in the end, that benefits everyone.

In after hours trading, Qualcomm’s stock is up $3.19 or 6.15% on the news.