Business, Cloud Computing, Hardware

Qualcomm Reports Record Quarterly and Annual 2013 Earnings – Now a $25 billion a Year Company

Qualcomm [NASDAQ:QCOM] today announced their earnings for both the fourth fiscal quarter of 2013 (third calendar quarter of 2013) and the entire fiscal year of 2013. In their earnings announcement, the company noted that they had achieved quarterly profit of $1.5 billion on $6.48 billion in revenue coming out to an earnings per share of $0.86. An improvement of EPS year over year of 18% and a reduction of 4% QoQ. While total earnings, without dissolution was up 18% and down 5%. Qualcomm did, however, increase their revenue both when compared to the previous quarter and the same quarter a year ago, with an improvement of 33% over a year ago and 4% over the previous quarter. Based on these figures, Qualcomm’s revenue hit a record number for the company even though their profits were a bit off due to a fourth quarter charge due to writing off the $173 million Parkervision lawsuit, which was not in their guidance.

Looking at Qualcomm’s 2013 fiscal figures, the company had the best year ever. They are now a $25 billion a year company with $24.87 billion in revenues which is an improvement of 30% year over year. They also had a net profit of $7.91 billion for the fiscal year of 2013, which is a profit margin of over 31%. They alos had a free cash flow of $8.08 billion which represents a strong cash position for the company, which is constantly looking to give lots of cash back to their investors in the form of bigger and bigger dividends.

As you can see, Qualcomm did a good job of hitting their guidance on their FY 13 results, even though they didn’t necessarily pummel their expectations. Even though their numbers were absolutely fantastic for the company year over year. Their expectations for 2014 weren’t so rosy. Qualcomm expects 2014 to moderate, not to shrink, but not to grow as fast as 2013 due to such a strong 2013.  Qualcomm expects to adjust for this by moderating their expenses and is aiming to reduce their operating expenses in fiscal 2014 to actually be at lower levels than fiscal 2013.

Based on these reduced outlooks and unexpected $173 million write-down, Qualcomm’s stock was down 5% after hours prior to the earnings call. As the earnings call continued and Qualcomm executives explained their plans for fiscal 2014 and how they would moderate the reduced expectations for 2014’s growth over 2014. This resulted in a slight recovery of the stock, but still down 4%.

What is interesting about Qualcomm’s earnings is that they don’t really expect themselves to really grow more than 5-11% year over year from 2013 to 2014. This means that Qualcomm’s stranglehold on the mobile industry is likely to continue into 2014. They also announced that they haven’t accounted for the sale of their OMNITracs business that we reported on, with us breaking the story over a year ago, which will represent a profit to the company of over $800 million.

Overall, it looks like Qualcomm is still in a fairly strong position in 2014, however they really do have some challengers coming up in 2014 with companies like Intel releasing their own LTE modems. The problem with this is that Qualcomm does have a lot of challengers that want to cut into their QCT sales. Qualcomm also expects their ASP for QCT to be down, which I believe is a mistake for the company to be chasing after the lower margin products and trying to compete with companies like Mediatek, Rockchip and AllWinner in China. I believe that Qualcomm should definitely try to participate in emerging markets, but I do not believe that it is the best idea for the company to try to bring themselves down to the level of their Chinese competitor’s pricing. Their best chance is when and if the Chinese market begins to transition towards LTE where they are very strong, but will likely have more competitors in that space once broad adoption occurs in China.

Where I do believe Qualcomm can continue to keep up their ASPs to compensate for their reductions in China would be automotive, where we believe the company is investing heavily. As automotive continues to grow technologically, we believe that Qualcomm will explore automotive more seriously than they already do.