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Qualcomm: Record 3Q 2014 Earnings, Reaffirms Guidance

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Qualcomm just announced their earnings for the fiscal third quarter of 2014 which includes the calendar second quarter of 2014, and their earnings were strong as ever. Qualcomm reported $2.24 billion in profit on $6.81 billion in revenues, this represents a 9 percent growth in revenue year over year as well as a 7 percent growth over the previous quarter. Profits also grew a whopping 42 percent year over year and 14 percent sequentially, squashing investors’ worries that Qualcomm’s caution last year about flatter revenues might affect profitability. Diluted EPS was $1.31, up 46 percent year over year and 15 percent sequentially. These earnings figures can most likely be attributed to Qualcomm’s absolute dominance of the high-end and mid-range Android market where their Snapdragon 801 chip won design wins in all of the most sought after and best selling phones.

In fact, the Snapdragon 801 alone is in the Samsung Galaxy S5, HTC One M8 and the LG G3, all three of which are considered to be the best Android phones on the market today. In addition to those devices, the Xiaomi Mi4 and the OnePlus One also feature Qualcomm’s Snapdragon 801 chip. If you take this into account, Qualcomm’s Snapdragon 801 chip absolutely dominates the competition and this is certainly helping Qualcomm to continue to drive growth.

Qualcomm also stated that they would be narrowing their guidance for the fiscal fourth quarter as well as the full fiscal year of 2014. This does not necessarily translate to a reduction in their expected revenue and profitability, but it does mean that their high end comes down a bit and their low end goes up. And the truth is, they usually hit somewhere between the midpoint and the high-end, which may cause some concern for some investors constantly expecting huge growth. They have guided the fiscal fourth quarter’s revenues to be $6.5 billion to $7.4 billion, flat to up 14 percent year over year as well as non-GAAP EPS at $1.20 to $1.35 up 14 to 29 percent year over year, a pretty decent improvement if you ask me. However, for that same quarter Qualcomm also cautioned that they expect to see a reduction in licensing revenues “to reflect some near-term challenges in China.”

For the whole year, though, Qualcomm has reaffirmed their guidance midpoint for revenue and narrowed the figures to $26.3 billion to $27.2 billion from the previous guidance of $26.0 billion and $27.5 billion, a total narrowing of $300 million. They raised their non-GAAP EPS guidance by $0.14 at the midpoint to $5.21 to $5.36 per share indicating a 16-19 percent growth year over year as opposed to the previous guidance of $5.05 to $5.25. Even so, Qualcomm’s shares are down a steep 3.49 percent in after hours trading on today’s earnings news, even though I suspect that it will likely be erased over the course of the earnings call, which should begin shortly. What is slightly bizarre, though, is that investors are dumping Qualcomm’s shares even though Broadcom just announced an exit from the baseband modem business, making Qualcomm’s business even stronger. However, Nvidia appears to be picking up some steam with their Tegra K1 mobile chip and could actually become some sort of a competitor against Qualcomm, especially since they still have their own applications processors and modems, and not many others do. Mediatek  could be a factor in the licensing business challenges, but Qualcomm hasn’t said anything yet that directly addresses that and we’ll have to see if they do during the call.